Looking Into Model N's Return On Capital Employed

During Q2, Model N's MODN reported sales totaled $48.19 million. Despite a 414.45% in earnings, the company posted a loss of $6.80 million. Model N collected $42.73 million in revenue during Q1, but reported earnings showed a $1.32 million loss.

Why ROCE Is Significant

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 Q2, Model N posted an ROCE of -0.06%.

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 Model N 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 Model N, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.

Q2 Earnings Recap

Model N reported Q2 earnings per share at $0.04/share, which beat analyst predictions of $-0.05/share.