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Looking into Root's Return on Capital Employed

After pulling data from Benzinga Pro it seems like during Q1, Root (NASDAQ:ROOT) brought in sales totaling $68.60 million. However, earnings decreased 6.55%, resulting in a loss of $94.30 million. Root collected $50.90 million in revenue during Q4, but reported earnings showed a $88.50 million loss.

What Is ROCE?

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 Q1, Root posted an ROCE of -0.1%.

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 Root 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 Root, the return on capital employed ratio shows the current amount of assets may not actually be helping the company achieve higher returns, a note many investors will take into account when making long-term financial decisions.

Analyst Predictions

Root reported Q1 earnings per share at $-0.4/share, which beat analyst predictions of $-0.44/share.

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