Veritiv Corporation (NYSE:VRTV) has witnessed a substantial rise in its stock market value, with a 35% increase recorded over the past quarter. This noteworthy surge in the company's market performance has prompted an in-depth analysis of its financial health, as such indicators often presage long-term market trends.
In the spotlight is Veritiv's return on equity (ROE), a key metric that gauges how effectively a company generates returns from its shareholders' investments. The ROE offers insight into the profit generated from each dollar invested by shareholders. For Veritiv, the calculated ROE stands at 35%, based on data for the 12 months leading up to June 2023. This figure indicates that the company generates a profit of $0.35 for every $1 of shareholder investment.
The formula for ROE calculation: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity. In Veritiv's case, this was derived from $308 million ÷ $883 million.
There is an important correlation between ROE and earnings growth. The higher a company's ROE and profit retention, the higher its potential future profitability is likely to be, assuming all other factors remain constant. Veritiv's 35% ROE and its earnings growth underscore this relationship. Not only does Veritiv have a high ROE, but it also surpasses the industry average of 18%, making it particularly significant.
This financial strength is further reflected in Veritiv's substantial 72% net income growth experienced over the past five years, aligning with the high ROE. This confirms the effectiveness of this financial indicator in assessing a company's profitability and potential for future growth.
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