Looking Into China Automotive Systems's Return On Capital Employed
During Q3, China Automotive Systems (NASDAQ: CAAS) brought in sales totaling $114.42 million. However, earnings decreased 76.14%, resulting in a loss of $1.44 million. In Q2, China Automotive Systems brought in $83.18 million in sales but lost $6.03 million in earnings.
What Is Return On Capital Employed?
Changes in earnings and sales indicate shifts in China Automotive Systems’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, China Automotive Systems posted an ROCE of -0.0%.
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 China Automotive Systems 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 China Automotive Systems'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 Recap
China Automotive Systems reported Q3 earnings per share at $0.08/share, which beat analyst predictions of $0.01/share.
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