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The Donaldson Company (NYSE:DCI) stock has increased by 9.6% over the past three months. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. In particular, I would like to pay attention to Donaldson Company’s ROE today.
Return on equity or ROE tests how effectively a company is growing its value and managing investors’ money. Simply put, it is used to evaluate a company’s profitability compared to its equity.
Check out our latest analysis for Donaldson Company.
How is ROE calculated?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, the ROE for Donaldson Company is:
27% = USD 364 million ÷ USD 1.3 billion (based on trailing twelve months to October 2023).
“Return” refers to a company’s earnings over the past year. One way he conceptualizes this is that for every $1 of shareholders’ equity, the company earned him $0.27 in profit.
Why is ROE important for profit growth?
It has already been established that ROE serves as an indicator of how efficiently a company will generate future profits. We are then able to assess a company’s future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” All else being equal, companies with higher return on equity and profit retention typically have higher growth rates compared to companies that don’t have the same characteristics.
Donaldson Company’s earnings growth and ROE of 27%
First of all, we like that Donaldson Company has a nice ROE. Second, his ROE for the company is very good, even when compared to the industry average of 15%. This probably laid the foundation for the modest 8.2% net income growth The Donaldson Company has seen over the past five years.
We then compared Donaldson Company’s net income growth rate with the industry and found that the company’s reported growth rate is similar to the industry’s average growth rate of 8.8% over the past few years.
The foundations that give a company value have a lot to do with its revenue growth. Investors should check whether expected growth or decline in earnings has been factored in in any case. This will help you determine whether the stock’s future is bright or bleak. Is the market pricing in DCI’s future prospects? Find out in our latest Intrinsic Value infographic research report.
Does Donaldson Company utilize its retained earnings effectively?
Donaldson Company’s median three-year dividend payout ratio is 35%, which means it retains the remaining 65% of its profits. This suggests that the dividend is well covered, and given the company’s healthy growth, it appears that management is reinvesting earnings efficiently.
Additionally, The Donaldson Company has been paying dividends for at least 10 years. This means that the company is quite serious about sharing profits with shareholders. According to our latest analyst data, the company’s future dividend payout ratio is expected to drop to 25% over the next three years. Although the expected dividend payout ratio will decline, ROE is not expected to change significantly.
summary
Overall, we are very satisfied with Donaldson’s performance. In particular, it’s great to see that the company has invested heavily in its business, delivering strong revenue growth along with high rates of return. According to the latest industry analyst forecasts, the company is expected to maintain its current growth rate. Learn more about the company’s future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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