AeroVironment's Return on Invested Capital Insights

According to data from Benzinga Pro, during Q3, AeroVironment's AVAV reported sales totaled $134.40 million. Despite a 89.8% increase in earnings, the company posted a loss of $676 thousand. In Q2, AeroVironment brought in $111.58 million in sales but lost $6.63 million in earnings.

What Is Return On Invested Capital?

Return on Invested Capital is a measure of yearly pre-tax profit relative to capital invested by a business. Changes in earnings and sales indicate shifts in a company's ROIC. A higher ROIC 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 ROIC suggests the opposite. In Q3, AeroVironment posted an ROIC of -1.85%.

Keep in mind, while ROIC 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.

ROIC is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROIC shows AeroVironment 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 invested capital, some of that money can be reinvested in more capital which will generally lead to higher returns and, ultimately, earnings per share (EPS) growth.

For AeroVironment, a negative ROIC ratio of -1.85% suggests that management may not be effectively allocating their capital. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns; poor capital allocation can be a leech on the performance of a company over time.