Benzinga | Aug 21, 2021 12:49PM EDT

Return On Capital Employed Overview: The Scotts Miracle Gro

The Scotts Miracle Gro (NYSE:SMG) posted Q3 earnings of $302.10 million, an increase from Q2 of 28.77%. Sales dropped to $1.61 billion, a 11.97% decrease between quarters. In Q2, The Scotts Miracle Gro earned $424.10 million, and total sales reached $1.83 billion.

Why ROCE Is Significant

Changes in earnings and sales indicate shifts in The Scotts Miracle Gro'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 Q3, The Scotts Miracle Gro posted an ROCE of 0.27%.

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 The Scotts Miracle Gro 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.

In The Scotts Miracle Gro's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q3 Earnings Insight

The Scotts Miracle Gro reported Q3 earnings per share at $3.98/share, which beat analyst predictions of $3.39/share.