Benzinga | Dec 22, 2020 09:58AM EST

Return On Capital Employed Overview: Editas Medicine

Editas Medicine (NASDAQ:EDIT) posted a 128.68% decrease in earnings from Q2. Sales, however, increased by 484.62% over the previous quarter to $62.84 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Editas Medicine is not utilizing their capital as effectively as possible. In Q2, Editas Medicine brought in $10.75 million in sales but lost $31.34 million in earnings.

What Is ROCE?

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 Q3, Editas Medicine posted an ROCE of 0.02%.

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.

For Editas Medicine, 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.

Q3 Earnings Recap

Editas Medicine reported Q3 earnings per share at $0.12/share, which beat analyst predictions of $-0.61/share.