Benzinga | Aug 20, 2021 01:56PM EDT

Looking into Watts Water Technologies's Return on Capital Employed

Pulled from Benzinga Pro data Watts Water Technologies (NYSE:WTS) showed a loss in earnings since Q1, totaling $52.70 million. Sales, on the other hand, increased by 12.99% to $467.00 million during Q2. Watts Water Technologies reached earnings of $59.60 million and sales of $413.30 million in Q1.

What Is ROCE?

Changes in earnings and sales indicate shifts in Watts Water Technologies'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, Watts Water Technologies posted an ROCE of 0.05%.

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 Watts Water Technologies 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.

For Watts Water Technologies, 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.

Analyst Predictions

Watts Water Technologies reported Q2 earnings per share at $1.48/share, which beat analyst predictions of $1.28/share.