Are Strong Financial Prospects The Force That Is Driving The Momentum In Dassault Aviation société anonyme's EPA:AM) Stock?

Dassault Aviation société anonyme's (EPA:AM) stock is up by a considerable 55% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Dassault Aviation société anonyme's ROE.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Dassault Aviation société anonyme is:

15% = €924m ÷ €6.3b (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every €1 worth of shareholders' equity, the company generated €0.15 in profit.

See our latest analysis for Dassault Aviation société anonyme

Why Is ROE Important For Earnings Growth?

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. 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.

Dassault Aviation société anonyme's Earnings Growth And 15% ROE

To begin with, Dassault Aviation société anonyme seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 12%. This certainly adds some context to Dassault Aviation société anonyme's moderate 13% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Dassault Aviation société anonyme's reported growth was lower than the industry growth of 21% over the last few years, which is not something we like to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Dassault Aviation société anonyme fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Dassault Aviation société anonyme Efficiently Re-investing Its Profits?

Dassault Aviation société anonyme has a three-year median payout ratio of 33%, which implies that it retains the remaining 67% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Moreover, Dassault Aviation société anonyme is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 31% of its profits over the next three years. Regardless, the future ROE for Dassault Aviation société anonyme is predicted to rise to 18% despite there being not much change expected in its payout ratio.

Summary

On the whole, we feel that Dassault Aviation société anonyme's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see a good amount of growth in its earnings. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.