Return On Capital Employed Overview: China Automotive Systems

China Automotive Systems CAAS posted Q1 earnings of $2.84 million, an increase from Q4 of 152.55%. Sales dropped to $130.34 million, a 11.03% decrease between quarters. In Q4, China Automotive Systems brought in $146.50 million in sales but lost $5.41 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 Q1, China Automotive Systems posted an ROCE of 0.01%.

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.

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

For China Automotive Systems, 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 Recap

China Automotive Systems reported Q1 earnings per share at $0.1/share, which beat analyst predictions of $0.03/share.