Benzinga | Dec 10, 2020 09:44AM EST

Looking Into Editas Medicine's Return On Capital Employed

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.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Editas Medicine'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 Q3, Editas Medicine posted an ROCE of 0.02%.

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.

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

Q3 Earnings Recap

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