Return On Capital Employed Overview: Federal Signal

Federal Signal FSS showed a loss in earnings since Q3, totaling $33.80 million. Sales, on the other hand, increased by 5.36% to $294.80 million during Q4. Federal Signal reached earnings of $34.00 million and sales of $279.80 million in Q3.

What Is Return On Capital Employed?

Changes in earnings and sales indicate shifts in Federal Signal'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 Q4, Federal Signal posted an ROCE of 0.05%.

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 Federal Signal 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 Federal Signal, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.

Q4 Earnings Insight

Federal Signal reported Q4 earnings per share at $0.44/share, which beat analyst predictions of $0.41/share.