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Most readers would already know that Coca-Cola FEMSA. de's (NYSE:KOF) stock increased by 2.0% over the past month. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Coca-Cola FEMSA. de's 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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
Check out our latest analysis for Coca-Cola FEMSA. de
How Do You Calculate Return On Equity?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Coca-Cola FEMSA. de is:
17% = Mex$21b ÷ Mex$124b (Based on the trailing twelve months to June 2023).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.17 in profit.
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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
Coca-Cola FEMSA. de's Earnings Growth And 17% ROE
To begin with, Coca-Cola FEMSA. de seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 17%. This certainly adds some context to Coca-Cola FEMSA. de's exceptional 33% net income growth seen over the past five years. We reckon that there could also be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.
Next, on comparing with the industry net income growth, we found that Coca-Cola FEMSA. de's growth is quite high when compared to the industry average growth of 7.9% in the same period, which is great to see.
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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is KOF worth today? The intrinsic value infographic in our free research report helps visualize whether KOF is currently mispriced by the market.