Autoliv’s (NYSE:ALV) stock is up by a considerable 20% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Autoliv’s ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Autoliv is:
29% = US$716m ÷ US$2.5b (Based on the trailing twelve months to June 2025).
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 $0.29 in profit.
View our latest analysis for Autoliv
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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.
To begin with, Autoliv has a pretty high ROE which is interesting. Additionally, the company’s ROE is higher compared to the industry average of 9.5% which is quite remarkable. So, the substantial 21% net income growth seen by Autoliv over the past five years isn’t overly surprising.
We then compared Autoliv’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 16% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). Doing so will help them establish if the stock’s future looks promising or ominous. Is ALV fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
The three-year median payout ratio for Autoliv is 46%, which is moderately low. The company is retaining the remaining 54%. By the looks of it, the dividend is well covered and Autoliv is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.
Moreover, Autoliv is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Existing analyst estimates suggest that the company’s future payout ratio is expected to drop to 25% over the next three years. Despite the lower expected payout ratio, the company’s ROE is not expected to change by much.
In total, we are pretty happy with Autoliv’s performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company’s earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.