In This Article:
Autodesk's (NASDAQ:ADSK) stock up by 3.7% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Particularly, we will be paying attention to Autodesk's ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Autodesk
How To Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Autodesk is:
42% = US$1.1b ÷ US$2.6b (Based on the trailing twelve months to October 2024).
The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.42.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
Autodesk's Earnings Growth And 42% ROE
Firstly, we acknowledge that Autodesk has a significantly high ROE. Secondly, even when compared to the industry average of 12% the company's ROE is quite impressive. Probably as a result of this, Autodesk was able to see a decent net income growth of 15% over the last five years.
As a next step, we compared Autodesk's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 20% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is ADSK fairly valued? This infographic on the company's intrinsic value has everything you need to know.
Is Autodesk Using Its Retained Earnings Effectively?
Given that Autodesk doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.