Looking into Simulations Plus's Return on Capital Employed

Pulled from Benzinga Pro data Simulations Plus SLP posted Q3 earnings of $4.42 million, an increase from Q2 of 31.42%. Sales dropped to $12.78 million, a 2.81% decrease between quarters. In Q2, Simulations Plus brought in $13.15 million in sales but only earned $3.36 million.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Simulations Plus'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 Q3, Simulations Plus 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 Simulations Plus 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.

In Simulations Plus's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.