Simply Wall St
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Keurig Dr Pepper (NASDAQ:KDP) has had a rough three months with its share price down 4.0%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Particularly, we will be paying attention to Keurig Dr Pepper’s ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
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 Keurig Dr Pepper is:
6.2% = US$1.5b ÷ US$24b (Based on the trailing twelve months to March 2025).
The ‘return’ is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each $1 of shareholders’ capital it has, the company made $0.06 in profit.
Check out our latest analysis for Keurig Dr Pepper
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. 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.
At first glance, Keurig Dr Pepper’s ROE doesn’t look very promising. Next, when compared to the average industry ROE of 19%, the company’s ROE leaves us feeling even less enthusiastic. However, the moderate 6.7% net income growth seen by Keurig Dr Pepper over the past five years is definitely a positive. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing Keurig Dr Pepper’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 7.6% over the last few years.
