Return On Capital Employed Overview: Guidewire Software

During Q3, Guidewire Software's GWRE reported sales totaled $163.97 million. Despite a 72.98% in earnings, the company posted a loss of $46.83 million. In Q2, Guidewire Software brought in $180.06 million in sales but lost $27.07 million in earnings.

Why ROCE Is Significant

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 Q3, Guidewire Software posted an ROCE of -0.03%.

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 Guidewire Software's case, the ROCE ratio shows the amount of assets may not be helping the company achieve higher returns. Investors may take this into account before making any long-term financial decisions.

Q3 Earnings Insight

Guidewire Software reported Q3 earnings per share at $-0.16/share, which beat analyst predictions of $-0.24/share.