Looking into Targa Resources's Return on Capital Employed

Pulled from Benzinga Pro data Targa Resources TRGP posted Q2 earnings of $245.80 million, an increase from Q1 of 28.57%. Sales dropped to $3.42 billion, a 5.97% decrease between quarters. Targa Resources earned $344.10 million, and sales totaled $3.63 billion in Q1.

What Is ROCE?

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, Targa Resources posted an ROCE of 0.04%.

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.

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.

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

Analyst Predictions

Targa Resources reported Q2 earnings per share at $0.15/share, which did not meet analyst predictions of $0.24/share.