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It is hard to get excited after looking at Carlisle Companies' (NYSE:CSL) recent performance, when its stock has declined 7.1% over the past three months. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Carlisle Companies' ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Carlisle Companies is:
35% = US$865m ÷ US$2.5b (Based on the trailing twelve months to December 2024).
The 'return' is the yearly profit. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.35 in profit.
Check out our latest analysis for Carlisle Companies
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Carlisle Companies' Earnings Growth And 35% ROE
First thing first, we like that Carlisle Companies has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. Under the circumstances, Carlisle Companies' considerable five year net income growth of 20% was to be expected.
Next, on comparing with the industry net income growth, we found that Carlisle Companies' growth is quite high when compared to the industry average growth of 16% in the same period, which is great to see.
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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is CSL worth today? The intrinsic value infographic in our free research report helps visualize whether CSL is currently mispriced by the market.