Ferrari (NYSE:RACE) has been under the spotlight recently due to a 1.7% dip in its stock value over the past quarter. However, despite this short-term setback, the company's long-term financial outlook remains promising, especially when considering its robust return on equity (ROE).
The ROE is an essential financial metric for shareholders as it measures the efficiency with which a company is reinvesting its capital and converting it into profits. Ferrari's ROE stands at an impressive 40%, derived from its net profit of €1.1 billion (€1 = $1.0667) and shareholders' equity of €2.7 billion over the trailing twelve months to June 2023. This suggests that the luxury car manufacturer has generated $0.40 in profit for every $1 of shareholders' equity in the last year.
This figure is particularly notable when compared with the industry average ROE of 17%, highlighting Ferrari's strong profitability and reinvestment strategies. Such a high ROE often indicates a company's potential for future earnings growth, especially if it retains a significant portion of its profits.
Indeed, Ferrari has seen a respectable net income growth of 8.2% over the past five years, likely bolstered by its robust ROE. However, when compared with the industry average growth rate of 24% over the same period, Ferrari's progress appears slower.
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