Looking Into HubSpot's Return On Capital Employed
HubSpot (NYSE: HUBS) reported Q2 sales of $203.61 million. Earnings fell to a loss of $13.62 million, resulting in a 3.38% decrease from last quarter. HubSpot collected $198.97 million in revenue during Q1, but reported earnings showed a $14.10 million loss.
Why ROCE Is Significant
Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed in a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth in a company and is a sign of higher earnings per share for shareholders in the future. A low or negative ROCE suggests the opposite. In Q2, HubSpot posted an ROCE of -0.02%.
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 an important metric for the comparison of similar companies. A relatively high ROCE shows HubSpot 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 lead to higher returns and earnings per share growth.
In HubSpot'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.
Q2 Earnings Recap
HubSpot reported Q2 earnings per share at $0.34/share, which beat analyst predictions of $0.24/share.
See more from Benzinga
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
