Benzinga | Jun 29, 2021 10:58AM EDT

Limoneira Insights: Return On Capital Employed

Limoneira (NASDAQ:LMNR) showed a loss in earnings since Q1, totaling $2.38 million. Sales, on the other hand, increased by 17.92% to $45.13 million during Q2. In Q1, Limoneira brought in $38.27 million in sales but lost $5.64 million in earnings.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in Limoneira'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, Limoneira posted an ROCE of 0.01%.

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 Limoneira 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 Limoneira, 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 Recap

Limoneira reported Q2 earnings per share at $0.1/share, which beat analyst predictions of $0.06/share.