Benzinga | Aug 18, 2021 10:50AM EDT

Return on Capital Employed Insights for Ultra Clean Holdings

Pulled from Benzinga Pro data Ultra Clean Holdings (NASDAQ:UCTT) posted a 21.04% decrease in earnings from Q1. Sales, however, increased by 23.36% over the previous quarter to $515.20 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Ultra Clean Holdings is not utilizing their capital as effectively as possible. In Q1, Ultra Clean Holdings earned $40.40 million and total sales reached $417.63 million.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Ultra Clean Holdings's Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed by a business. Generally, a higher ROCE suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q2, Ultra Clean Holdings posted an ROCE of 0.04%.

It is important to keep in mind ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but several factors could affect earnings and 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 Ultra Clean Holdings, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.

Upcoming Earnings Estimate

Ultra Clean Holdings reported Q2 earnings per share at $0.99/share, which beat analyst predictions of $0.96/share.