Benzinga | Aug 20, 2021 01:47PM EDT

Return on Capital Employed Overview: Mercury General

After pulling data from Benzinga Pro it seems like during Q2, Mercury General (NYSE:MCY) earned $139.64 million, a 2.1% increase from the preceding quarter. Mercury General also posted a total of $1.02 billion in sales, a 2.61% increase since Q1. In Q1, Mercury General earned $136.76 million, whereas sales reached $993.10 million.

Why ROCE Is Significant

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, Mercury General posted an ROCE of 0.06%.

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

Analyst Predictions

Mercury General reported Q2 earnings per share at $1.13/share, which did not meet analyst predictions of $1.17/share.