Cincinnati Financial’s (NASDAQ:CINF) stock is up by 3.2% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company’s key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Cincinnati Financial’s ROE.
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.
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 Cincinnati Financial is:
14% = US$2.1b ÷ US$15b (Based on the trailing twelve months to September 2025).
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 $0.14 in profit.
View our latest analysis for Cincinnati Financial
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. 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.
To start with, Cincinnati Financial’s ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 13%. Despite the moderate return on equity, Cincinnati Financial has posted a net income growth of 3.4% over the past five years. We reckon that a low growth, when returns are moderate could be the result of certain circumstances like low earnings retention or poor allocation of capital.
As a next step, we compared Cincinnati Financial’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 11% in the same period.
