Amazon.com (NASDAQ:AMZN) stock has increased by 9.0% over the past three months. Usually the market pays for a company's long-term financial health, so we decided to examine a company's fundamentals to see if they might be influencing the market. Did. In particular, I would like to pay attention to Amazon.com's ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it receives from its shareholders. In other words, it is a rate of return that measures the rate of return on the capital provided by a company's shareholders.
Check out our latest analysis for Amazon.com.
How is ROE calculated?
of Formula for calculating return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Amazon.com's ROE is:
17% = USD 38 billion ÷ USD 217 billion (based on trailing 12 months to March 2024).
“Return” refers to a company's earnings over the past year. That means for every $1 of shareholders' equity, the company generated $0.17 in profit for him.
What relationship does ROE have with profit growth?
So far, we have learned that ROE is a measure of a company's profitability. 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.” Assuming everything else remains constant, the higher the ROE and profit retention, the higher the company's growth rate compared to companies that don't necessarily have these characteristics.
Amazon.com's revenue growth and ROE 17%
First, Amazon.com's ROE seems acceptable. Moreover, his ROE for the company is in line with the industry average of 17%. This certainly lends some context to Amazon.com's modest net income growth of 9.4% over the past five years.
As a next step, we compared Amazon.com's net income growth rate to the industry and were disappointed to find that the company's growth rate was lower than the industry average growth rate of 14% over the same period.
Earnings growth is an important metric to consider when evaluating a stock. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). That way, you'll know if the stock is headed for clear blue waters or if a swamp awaits. Is the market pricing in AMZN's future prospects? Find out in our latest Intrinsic Value infographic research report.
Is Amazon.com effectively utilizing its retained earnings?
Given that Amazon.com does not pay regular dividends to shareholders, we can assume that the company reinvests all of its profits into growing its business.
conclusion
Overall, I'm pretty happy with Amazon.com's performance. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. As a result, it's no surprise that revenue increases significantly. That said, the latest analyst forecasts suggest that the company's revenue will continue to grow. 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 based on historical data and analyst forecasts using only unbiased methodologies, 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.
