In Q1, Babcock & Wilcox (NYSE:BW) posted sales of $168.20 million. Earnings were up 5292.36%, but Babcock & Wilcox still reported an overall loss of $8.47 million. Babcock & Wilcox collected $149.90 million in revenue during Q4, but reported earnings showed a $157.00 thousand loss.
Why ROCE Is Significant
Changes in earnings and sales indicate shifts in Babcock & Wilcox’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 Q1, Babcock & Wilcox posted an ROCE of 0.04%.
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.
For Babcock & Wilcox, 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.
Q1 Earnings Insight
Babcock & Wilcox reported Q1 earnings per share at $-0.22/share, which did not meet analyst predictions of $-0.01/share.
