Benzinga | Aug 20, 2021 01:42PM EDT

Looking into W&T Offshore's Return on Capital Employed

Pulled from Benzinga Pro data W&T Offshore (NYSE:WTI) posted a 15.31% decrease in earnings from Q1. Sales, however, increased by 5.72% over the previous quarter to $132.83 million. Despite the increase in sales this quarter, the decrease in earnings may suggest W&T Offshore is not utilizing their capital as effectively as possible. In Q1, W&T Offshore earned $39.63 million and total sales reached $125.65 million.

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, W&T Offshore posted an ROCE of -0.13%.

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.

In W&T Offshore's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Analyst Predictions

W&T Offshore reported Q2 earnings per share at $0.02/share, which did not meet analyst predictions of $0.07/share.