Is Dassault Aviation société anonyme's (EPA:AM) Latest Stock Performance Being Led By Its Strong Fundamentals?

Most readers would already know that Dassault Aviation société anonyme's (EPA:AM) stock increased by 3.2% 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. Particularly, we will be paying attention to Dassault Aviation société anonyme'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Dassault Aviation société anonyme

How To Calculate Return On Equity?

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 Dassault Aviation société anonyme is:

14% = €808m ÷ €5.9b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. That means that for every €1 worth of shareholders' equity, the company generated €0.14 in profit.

What Is The Relationship Between ROE And 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.

Dassault Aviation société anonyme's Earnings Growth And 14% ROE

To begin with, Dassault Aviation société anonyme seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 12%. Consequently, this likely laid the ground for the decent growth of 7.5% seen over the past five years by Dassault Aviation société anonyme.

Next, on comparing Dassault Aviation société anonyme's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 7.5% over the last few years.

Earnings growth is a huge factor in stock valuation. 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 Making Efficient Use Of 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. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 31%. However, Dassault Aviation société anonyme's ROE is predicted to rise to 17% despite there being no anticipated change in its payout ratio.

Summary

On the whole, we feel that Dassault Aviation société anonyme's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.