Return On Capital Employed Overview: RGC Resources

Looking at Q2, RGC Resources RGCO earned $7.10 million, a 27.2% increase from the preceding quarter. RGC Resources also posted a total of $28.25 million in sales, a 44.77% increase since Q1. RGC Resources earned $5.58 million, and sales totaled $19.52 million in Q1.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in RGC Resources'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, RGC Resources 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.

ROCE is an important metric for the comparison of similar companies. A relatively high ROCE shows RGC Resources 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 RGC Resources, 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.

Q2 Earnings Insight

RGC Resources reported Q2 earnings per share at $0.58/share, which did not meet analyst predictions of $0.58/share.