Benzinga | Sep 22, 2020 09:57AM EDT

Looking Into Illumina's Return On Capital Employed

Looking at Q2, Illumina (NASDAQ:ILMN) earned $96.00 million, a 49.21% increase from the preceding quarter. Illumina's sales decreased to $633.00 million, a 26.31% change since Q1. In Q1, Illumina earned $189.00 million, and total sales reached $859.00 million.

What Is ROCE?

Changes in earnings and sales indicate shifts in Illumina's Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed in a business. Generally, a higher ROCE suggests successful growth in a company and is a sign of higher earnings per share for shareholders in the future. In Q2, Illumina 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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows Illumina 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 lead to higher returns and earnings per share growth.

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

Q2 Earnings Insight

Illumina reported Q2 earnings per share at $0.62/share, which did not meet analyst predictions of $0.67/share.