Benzinga | Aug 20, 2021 01:49PM EDT

Looking into Quaker Chemical's Return on Capital Employed

Pulled from Benzinga Pro data Quaker Chemical (NYSE:KWR) posted a 10.32% decrease in earnings from Q1. Sales, however, increased by 1.27% over the previous quarter to $435.26 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Quaker Chemical is not utilizing their capital as effectively as possible. Quaker Chemical reached earnings of $50.71 million and sales of $429.78 million in Q1.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Quaker Chemical'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, Quaker Chemical posted an ROCE of 0.03%.

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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Quaker Chemical is potentially operating at a higher level of efficiency than other companies in its industry. If the company is generating high profits with its current level of capital, some of that money can be reinvested in more capital which will generally lead to higher returns and earnings per share growth.

In Quaker Chemical's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Analyst Predictions

Quaker Chemical reported Q2 earnings per share at $1.82/share, which beat analyst predictions of $1.42/share.