Benzinga | Jul 29, 2021 02:26PM EDT

Return on Capital Employed Insights for Kansas City Southern

After pulling data from Benzinga Pro it seems like during Q2, Kansas City Southern (NYSE:KSU) brought in sales totaling $749.50 million. However, earnings decreased 270.63%, resulting in a loss of $431.70 million. Kansas City Southern reached earnings of $253.00 million and sales of $706.00 million in Q1.

What Is ROCE?

Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed by a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth of a company and is a sign of higher earnings per share in the future. A low or negative ROCE suggests the opposite. In Q2, Kansas City Southern posted an ROCE of -0.1%.

Keep in mind, while ROCE is a good measure of a company's recent performance, it is not a highly reliable predictor of a company's earnings or sales in the near future.

Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders.

For Kansas City Southern, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.

Analyst Predictions

Kansas City Southern reported Q2 earnings per share at $2.06/share, which did not meet analyst predictions of $2.19/share.