Return on Capital Employed Insights for Target Hospitality

Pulled from Benzinga Pro data Target Hospitality TH reported Q1 sales of $45.49 million. Earnings fell to a loss of $4.11 million, resulting in a 25.36% decrease from last quarter. Target Hospitality collected $51.61 million in revenue during Q4, but reported earnings showed a $3.28 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 Q1, Target Hospitality posted an ROCE of -0.05%.

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 Target Hospitality 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 Target Hospitality, 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.

Upcoming Earnings Estimate

Target Hospitality reported Q1 earnings per share at $-0.14/share, which did not meet analyst predictions of $-0.09/share.