Do Its Financials Have Any Role To Play In Driving Knight-Swift Transportation Holdings Inc.'s (NYSE:KNX) Stock Up Recently?
Knight-Swift Transportation Holdings' (NYSE:KNX) stock is up by a considerable 12% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Knight-Swift Transportation Holdings' ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for Knight-Swift Transportation Holdings
How Do You Calculate Return On Equity?
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Knight-Swift Transportation Holdings is:
3.0% = US$216m ÷ US$7.1b (Based on the trailing twelve months to December 2023).
The 'return' is the income the business earned over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.03 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
Knight-Swift Transportation Holdings' Earnings Growth And 3.0% ROE
It is quite clear that Knight-Swift Transportation Holdings' ROE is rather low. Not just that, even compared to the industry average of 14%, the company's ROE is entirely unremarkable. However, the moderate 11% net income growth seen by Knight-Swift Transportation Holdings over the past five years is definitely a positive. We believe that there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.
Next, on comparing with the industry net income growth, we found that Knight-Swift Transportation Holdings' reported growth was lower than the industry growth of 16% over the last few years, which is not something we like to see.
