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Crane NXT (NYSE:CXT) shares are up 7. 4% in the past month. Given the company’s impressive performance, we need to take a closer look at its monetary metrics, as a company’s long-term financial fitness regularly dictates market outcomes. In this article, we need to focus on the ROE of Crane NXT.
Return on equity, or ROE, is proof of how well a company increases its value and manages investors’ money. In other words, it is a profitability index that measures the rate of return on the capital contributed by the company’s shareholders.
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The return on equity can be calculated by the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the formula above, the ROE of Crane NXT is:
23% = $201 million ÷ $873 million (based on the last twelve months through September 2023).
“Return” is the amount earned after taxes in the last twelve months. One way to conceptualize this is that for every $1 of registered capital it has, the company makes $0. 23 in profit.
So far, we’ve learned that ROE is a measure of a company’s profitability. Based on how much of those profits the company reinvests or “holds” and how well it does so, we must assess the potential for expansion of a company’s earnings. Assuming everything else remains unchanged: the higher the ROE and profit retention, the higher a company’s rate of expansion will be compared to corporations that don’t necessarily have those characteristics.
For starters, Crane NXT has a pretty high SWR, which is interesting. Second, even compared to the industry average of 11%, the company’s ROE is impressive. Thus, Crane NXT’s really extensive 21% expansion in its net source of revenue over the past five years is rarely too surprising.
Then, compared to the expansion of the industry’s net profits, we found that Crane NXT’s expansion is superior compared to the industry’s average expansion of 16% over the same period, which is wonderful to see.
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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is CXT worth today? The intrinsic value infographic in our free research report helps visualize whether CXT is currently mispriced by the market.
Crane NXT’s three-year median payout ratio to shareholders is 6.0%, which is quite low. This implies that the company is retaining 94% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.
Although Crane NXT has increased its profits, it has only recently started paying dividends, which likely means that the company has to impress new and existing shareholders with a dividend. Looking at the latest analyst consensus data, we found that the company’s earnings long-term payout ratio is expected to reach 13% over the next three years. Despite the higher expected payout ratio, the company’s ROE is not expected to increase significantly.
On the whole, we feel that Crane NXT’s 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 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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