Is Carvana Co.'s (NYSE:CVNA) 16% ROE Better Than Average?

Simply Wall St.12-22 19:00

One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. ...

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With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. ...</p>\n\n<a href=\"https://finance.yahoo.com/news/carvana-co-nyse-cvna-16-110011118.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"ROE","symbol_name":"ASTORIA US QUALITY KINGS ETF","start_time":0,"source_url":"https://finance.yahoo.com/news/carvana-co-nyse-cvna-16-110011118.html","article_id":"2493424828","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/cPZIfz2UAIoxQVfVuqVWjg--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/c81cd85cb4b7d3ca5825dd1ac04873a7"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2493424828","pubTimestamp":1734865211,"columns":[],"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity  to better understand a business. By way of learning-by-doing, we'll look at ROE to gain a better understanding of Carvana Co. .Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.Return on Equity = Net Profit  ÷ Shareholders' Equity. So, based on the above formula, the ROE for Carvana is:. Does Carvana Have A Good Return On Equity?Combining Carvana's Debt And Its 16% Return On Equity. Return on equity is one way we can compare its business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. All else being equal, a higher ROE is better.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"ROE":"ASTORIA US QUALITY KINGS ETF","BK4503":"景林资产持仓","NYSE":"纽交所","BK4548":"巴美列捷福持仓","CVNA":"Carvana Co.","BK4214":"汽车零售","BK4585":"ETF&股票定投概念","BK4588":"碎股"},"translate_title":"Carvana Co.(NYSE：CVNA)16%的ROE是否高于平均水平？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CVNA":1,"NYSE":1,"ROE":1},"content_text":"One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. By way of learning-by-doing, we'll look at ROE to gain a better understanding of Carvana Co. (NYSE:CVNA). \n Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity. \n View our latest analysis for Carvana \n How Is ROE Calculated? \n The formula for return on equity is: \n Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity \nSo, based on the above formula, the ROE for Carvana is:\n16% = US$45m ÷ US$286m (Based on the trailing twelve months to September 2024).\n The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.16 in profit. \n Does Carvana Have A Good Return On Equity? \n By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. If you look at the image below, you can see Carvana has a similar ROE to the average in the Specialty Retail industry classification (19%). \n\n\n\n  NYSE:CVNA Return on Equity December 22nd 2024\n \n\n So while the ROE is not exceptional, at least its acceptable. Even if the ROE is respectable when compared to the industry, its worth checking if the firm's ROE is being aided by high debt levels. If a company takes on too much debt, it is at higher risk of defaulting on interest payments. You can see the 3 risks we have identified for Carvana by visiting our risks dashboard for free  on our platform here. \n The Importance Of Debt To Return On Equity \n Companies usually need to invest money to grow their profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking. \n Combining Carvana's Debt And Its 16% Return On Equity \n We think Carvana uses a significant amount of debt to maximize its returns, as it has a significantly higher debt to equity ratio of 17.59. Its ROE is decent, but once I consider all the debt, I'm not really impressed. \n Summary \n Return on equity is one way we can compare its business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. All else being equal, a higher ROE is better. \n But when a business is high quality, the market often bids it up to a price that reflects this. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So you might want to check this FREE visualization of analyst forecasts for the company. \n Of course Carvana may not be the best stock to buy. So you may wish to see this free collection of other companies that have high ROE and low debt. \nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2493424828"}