Looking Into Advanced Drainage Systems's Return On Capital Employed

Advanced Drainage Systems WMS posted Q4 earnings of $33.91 million, an increase from Q3 of 59.6%. Sales dropped to $443.81 million, a 8.71% decrease between quarters. In Q3, Advanced Drainage Systems earned $83.94 million, and total sales reached $486.14 million.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Advanced Drainage Systems'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 Q4, Advanced Drainage Systems posted an ROCE of 0.03%.

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 Advanced Drainage 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 Advanced Drainage 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.

Q4 Earnings Insight

Advanced Drainage Systems reported Q4 earnings per share at $0.23/share, which did not meet analyst predictions of $0.32/share.