editorial-team@simplywallst.com (Simply Wall St)
4 min read
In This Article:
Westinghouse Air Brake Technologies (NYSE:WAB) has had a rough three months with its share price down 15%. 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. Specifically, we decided to study Westinghouse Air Brake Technologies’ 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
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The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Westinghouse Air Brake Technologies is:
11% = US$1.1b ÷ US$10b (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 $0.11 in profit.
View our latest analysis for Westinghouse Air Brake Technologies
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.
When you first look at it, Westinghouse Air Brake Technologies’ ROE doesn’t look that attractive. Next, when compared to the average industry ROE of 14%, the company’s ROE leaves us feeling even less enthusiastic. However, we we’re pleasantly surprised to see that Westinghouse Air Brake Technologies grew its net income at a significant rate of 22% in the last five years. So, there might be other aspects that are positively influencing the company’s earnings growth. 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.
We then compared Westinghouse Air Brake Technologies’ net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 16% in the same 5-year period.
