Benzinga | Sep 21, 2021 10:47AM EDT

Vectrus's Return On Capital Employed Insights

According to Benzinga Pro, during Q2, Vectrus (NYSE:VEC) earned $22.58 million, a 36.58% increase from the preceding quarter. Vectrus also posted a total of $470.85 million in sales, a 8.49% increase since Q1. Vectrus earned $16.53 million, and sales totaled $434.00 million in Q1.

What Is Return On Capital Employed?

Earnings data without context is not clear and can be difficult to base trading decisions on. Return on Capital Employed (ROCE) helps to filter signal from noise by measuring 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, Vectrus posted an ROCE of 0.07%.

It is important to keep in mind that ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but does not account for factors that could affect earnings and sales in the near future.

ROCE is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROCE shows Vectrus 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, ultimately, earnings per share (EPS) growth.

For Vectrus, the positive return on capital employed ratio of 0.07% suggests that management is allocating their capital effectively. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns.

Analyst Predictions

Vectrus reported Q2 earnings per share at $1.52/share, which beat analyst predictions of $0.95/share.