Is Ryanair Holdings plc's (ISE:RYA) Recent Performance Tethered To Its Attractive Financial Prospects?

Ryanair Holdings' (ISE:RYA) stock is up by 8.8% 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 Ryanair Holdings' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Is ROE Calculated?

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 Ryanair Holdings is:

28% = €2.1b ÷ €7.4b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.28 in profit.

See our latest analysis for Ryanair Holdings

Why Is ROE Important For 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. 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.

Ryanair Holdings' Earnings Growth And 28% ROE

Firstly, we acknowledge that Ryanair Holdings has a significantly high ROE. Further, even comparing with the industry average if 28%, the company's ROE is quite respectable. Given the circumstances, the significant 55% net income growth seen by Ryanair Holdings over the last five years is not surprising.

We then performed a comparison between Ryanair Holdings' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 60% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for RYA? You can find out in our latest intrinsic value infographic research report.

Is Ryanair Holdings Using Its Retained Earnings Effectively?

Ryanair Holdings' three-year median payout ratio to shareholders is 25%, which is quite low. This implies that the company is retaining 75% of its profits. So it looks like Ryanair Holdings is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Along with seeing a growth in earnings, Ryanair Holdings only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. 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 24%. As a result, Ryanair Holdings' ROE is not expected to change by much either, which we inferred from the analyst estimate of 23% for future ROE.

Conclusion

On the whole, we feel that Ryanair Holdings' performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.