Southern's Return On Capital Employed Insights

According to Benzinga Pro, during Q2, Southern SO earned $1.09 billion, a 9.89% increase from the preceding quarter. Southern also posted a total of $7.21 billion in sales, a 8.39% increase since Q1. In Q1, Southern earned $991.00 million, and total sales reached $6.65 billion.

What Is Return On Capital Employed?

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, Southern 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.

ROCE is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROCE shows Southern 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, ultimately, earnings per share (EPS) growth.

For Southern, the positive return on capital employed ratio of 0.03% suggests that management is allocating their capital effectively. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns.