Ferrari (NYSE:RACE) Delivers for Investors and Clienti

Ferrari (NYSE:RACE) Delivers for Investors and Clienti

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:

  1. Net profit margin
  2. Asset turnover, and
  3. Financial leverage.

*Dupont Formula

ROE = profit margin × asset turnover × financial leverage

ROE = (annual net profit ÷ sales) × (sales ÷ assets) × (assets ÷ shareholders’ equity)

ROE = annual net profit ÷ shareholders’ equity

NYSE:RACE Last Perf Nov 16th 17

Basically, profit margin measures how much of revenue trickles down into earnings which illustrates how efficient Ferrari is with its cost management.

Asset turnover shows how much revenue Ferrari can generate with its current asset base.

The most interesting ratio, and reflective of sustainability of its ROE, is financial leverage.

Since financial leverage can artificially inflate ROE, we need to look at how much debt Ferrari currently has.

The debt-to-equity ratio currently stands at over 2.5X, meaning the above-average ratio is a result of a large amount of debt.

NYSE:RACE Historical Debt Nov 16th 17
NYSE:RACE Historical Debt (November 2017)

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

Symbol Last Trade Date Change Open High Low Volume
NYSE:RACE 110.15 Nov-16-2017 1.64 109.65 110.33 109.42 194,010
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

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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