Benzinga | Aug 20, 2021 01:59PM EDT

Return on Capital Employed Insights for Laredo Petroleum

After pulling data from Benzinga Pro it seems like during Q2, Laredo Petroleum (NYSE:LPI) earned $108.35 million, a 5.39% increase from the preceding quarter. Laredo Petroleum also posted a total of $294.37 million in sales, a 17.64% increase since Q1. Laredo Petroleum earned $102.80 million, and sales totaled $250.23 million in Q1.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Laredo Petroleum'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, Laredo Petroleum posted an ROCE of -0.7%.

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 Laredo Petroleum 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 Laredo Petroleum'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.

Upcoming Earnings Estimate

Laredo Petroleum reported Q2 earnings per share at $1.71/share, which did not meet analyst predictions of $2.94/share.