Looking into Avid Technology's Return on Capital Employed

Pulled from Benzinga Pro data Avid Technology AVID posted a 14.68% decrease in earnings from Q1. Sales, however, increased by 0.54% over the previous quarter to $94.88 million. Despite the increase in sales this quarter, the decrease in earnings may suggest Avid Technology is not utilizing their capital as effectively as possible. In Q1, Avid Technology earned $10.55 million and total sales reached $94.36 million.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Avid Technology'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 Q2, Avid Technology posted an ROCE of -0.07%.

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.

Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders.

For Avid Technology, 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

Avid Technology reported Q2 earnings per share at $0.25/share, which beat analyst predictions of $0.23/share.