Benzinga | Jul 27, 2020 10:46AM EDT

Return On Capital Employed Overview: Lincoln Electric Holdings

Lincoln Electric Holdings (NASDAQ:LECO) saw a drop in both earnings and sales after Q2. Earnings dropped to $55.55 million, a 86.22% decrease from the previous quarter. Sales fell to $590.73 million, down 15.85% from the previous quarter. In Q1, Lincoln Electric Holdings earned $403.19 million and total sales reached $702.00 million.

What Is ROCE?

Changes in earnings and sales indicate shifts in Lincoln Electric Holdings'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, Lincoln Electric Holdings posted an ROCE of 0.72%.

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

Q2 Earnings

Lincoln Electric Holdings reported Q2 earnings per share at $0.8/share against analyst predictions of $0.34/share.