Ferrari (NYSE:RACE) Delivers for Investors and Clienti
"La migliore Ferrari mai realizzata è la prossima"-- Enzo Ferrari*
Ferrari (NYSE:RACE) delivered an *ROE (return on equity) of 115.78% over the past 12 months, which is an impressive given the industry average of 16.45% during the same frame.
The impressive ratio tells us that Ferrari has made significant profits from little equity capital.
The Big Q: Is Ferrari’s ROE is sustainable?
ROE is a measure of RACE’s profit relative to its shareholders’ equity.
An ROE of 115.78% implies $1.16 returned on every $1 invested. In most cases, a higher ROE is preferred; however, there are many other factors to consider prior to making any investment decisions.
*Return on Equity = Net Profit ÷ Shareholders Equity
ROE is measured against cost of equity in order to determine the efficiency of RACE’s equity capital deployed.
Its cost of equity is 8.49%.
The Big A: Ferrari’s return covers its cost in excess of 107.28%, its use of equity capital is efficient and likely to be sustainable.
Simply put, Ferrari pays less for its capital than what it generates in return.
ROE can be broken down into 3 separate ratios know as the *Dupont Formula:
- Net profit margin
- Asset turnover, and
- Financial leverage.
ROE = profit margin × asset turnover × financial leverage
ROE = (annual net profit ÷ sales) × (sales ÷ assets) × (assets ÷ shareholders’ equity)
ROE = annual net profit ÷ shareholders’ equity
Ferrari’s above-industry ROE is encouraging, and is also in excess of its cost of equity.
On the debt side, Ferrari’s managements is paying it down regularly, that is in the 5 year plan to be announced in Q-1 Y 2018.
On the Supercar delivery side read this article please: Ferrari’s Racing Tech Comes Together in the FXX-K Evo
|HeffX-LTN Analysis for RACE:||Overall||Short||Intermediate||Long|
|Neutral (-0.08)||Bearish (-0.27)||Neutral (-0.06)||Neutral (0.08)|
“The best Ferrari ever made is the next one.” –Enzo Ferrari
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