2 weeks Ago By Simply Wall St.
In This Article: With its stock down 7.4% over the past three months, it is easy to disregard Elevance Health (NYSE:ELV). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising.
Particularly, we will be paying attention to Elevance Health'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for Elevance Health How Is ROE Calculated? ROE 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 Elevance Health is: 14% = US$6.0b ÷ US$41b (Based on the trailing twelve months to December 2024). The 'return' is the profit over the last twelve months.
Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.14 in profit. Why Is ROE Important For Earnings Growth? Thus far, we have learned that ROE measures how efficiently a company is generating its profits.
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. Elevance Health's Earnings Growth And 14% ROE At first glance, Elevance Health seems to have a decent ROE.
And on comparing with the industry, we found that the the average industry ROE is similar at 12%. Consequently, this likely laid the ground for the decent growth of 6.0% seen over the past five years by Elevance Health.
We then performed a comparison between Elevance Health's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 6.0% in the same 5-year period. Earnings growth is a huge factor in stock valuation.
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. If you're wondering about Elevance Health's's valuation, check out this gauge of its price-to-earnings ratio , as compared to its industry.
.
