Air Products and Chemicals' (NYSE:APD) stock is up by 4.0% over the past month. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Air Products and Chemicals' ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Air Products and Chemicals is:
16% = US$2.6b ÷ US$17b (Based on the trailing twelve months to June 2024).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.16.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
Air Products and Chemicals' Earnings Growth And 16% ROE
To start with, Air Products and Chemicals' ROE looks acceptable. On comparing with the average industry ROE of 9.6% the company's ROE looks pretty remarkable. Probably as a result of this, Air Products and Chemicals was able to see a decent growth of 6.7% over the last five years.
Next, on comparing with the industry net income growth, we found that Air Products and Chemicals' reported growth was lower than the industry growth of 13% over the last few years, which is not something we like to see.
NYSE:APD Past Earnings Growth August 21st 2024
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Air Products and Chemicals is trading on a high P/E or a low P/E, relative to its industry.
Is Air Products and Chemicals Efficiently Re-investing Its Profits?
While Air Products and Chemicals has a three-year median payout ratio of 64% (which means it retains 36% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.
Additionally, Air Products and Chemicals has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 47% over the next three years. Regardless, the ROE is not expected to change much for the company despite the lower expected payout ratio.
Conclusion
Overall, we feel that Air Products and Chemicals certainly does have some positive factors to consider. The company has grown its earnings moderately as previously discussed. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be quite low. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
株の評価をする際には、収益の成長は重要な指標です。投資家は予想される収益の成長または減少が織り込まれているかどうかを判断する必要があります。これによって、株の将来が有望か不吉かを判断することができます。予想される収益成長の良い指標の一つはP/E比です。これは市場が株の収益見通しに基づいて支払いたい価格を決定するものです。したがって、Air Products and Chemicalsが業種に対して高いP/E比で取引されているか、低いP/E比で取引されているかを確認してみてください。
Air Products and Chemicalsは利益を効率的に再投資していますか?
Air Products and Chemicalsの3年間の中央値のペイアウト比率は64%であり、利益の36%を留保しています。しかし、過去にはかなりの収益成長が見られたため、高いペイアウト比率は成長能力に支障をきたしていません。
さらに、Air Products and Chemicalsは少なくとも10年間にわたって配当を支払っており、株主と利益を共有することにかなりの重要性を置いています。最新のアナリストのコンセンサスデータを調査した結果、同社の将来的なペイアウト比率は次の3年間で47%に低下すると予想されています。それにもかかわらず、ROEは予想されるペイアウト比率の低下にもかかわらず、同社においてほとんど変化しないと予想されています。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。