Is Arista Networks, Inc. (NYSE: ANET) a first class stock with 29% return on equity?

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<p class = "Canvas-Atom-Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Many investors learn something about the different metrics that This article is for those who want to learn more about Return On Equity (ROE), so to get the practical background, we use the return on investment to better understand Arista Networks, Inc.NYSE: ANET). "data-reactid =" 27 "> Many investors are still learning the various metrics that can help analyze a stock, and this article is for those who want to learn more about return on equity (ROE) in this practical lesson, we use ROE to better understand Arista Networks, Inc. (NYSE: ANET).

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "In the last twelve months Arista Networks posted 29% ROE, Another option is that for every $ 1 worth of equity in the company, $ 0.29 was earned. "Data-reactid =" 28 "> In the past twelve months Arista Networks posted 29% ROE, Another possibility is that for every $ 1 worth of equity in the company, $ 0.29 could be earned.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = " Check out our latest analysis for Arista Networks "data-reactid =" 29 "> Check out our latest analysis for Arista Networks

How do you calculate the ROE?

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "The Formula for ROE is: "data-reactid =" 31 "> The Formula for ROE is:

Return on equity = net income (from continuing operations) ÷ equity

Or for Arista Networks:

29% = $ 769 million ÷ $ 2.7 billion (based on the last twelve months to September 2019)

Most people know that the net profit is the total after all expenses, but the concept of equity is a little more complicated. These are all the profits retained by the company plus the capital paid in by the shareholders. Equity can be calculated by subtracting the company's total liabilities from the company's total assets.

What does ROE mean?

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "ROE considers the amount a company earns in relation to the money it kept in business. The "return" is the annual profit. The higher the ROE, the more profit the company makes. So, everything else is the same, A high ROE is better than a low one, That said, it can be interesting to compare the returns of different companies. "Data-reactid =" 37 "> The rate of return refers to the amount a company earns in relation to the money it has kept in the company. The rate of return is the annual profit The higher the ROE, the more profit the company generates , A high ROE is better than a low one, That said, it can be interesting to compare the ROE of different companies.

Does Arista Networks have a good return on equity?

By comparing a company's ROE to the industry average, we can quickly determine how good it is. However, this method is only useful for a rough check, since companies differ considerably within the same industry division. As can be seen in the following picture, Arista Networks has a better ROE than the average (8.7%) in the communications industry.

NYSE: ANET Past Revenue and Net Income, January 3, 2020

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "That is clearly positive. I usually go closer. Find find out whether a company achieves a better return than comparable companies in the industry. I often check if insiders have bought shares, "data-reactid =" 52 "> This is clearly positive. I usually take a closer look when a company has a better ROE than industry colleagues. For example: I often check if insiders have bought shares,

How does debt affect ROE?

Businesses usually have to invest money to increase their profits. This money can come from retained earnings, the issue of new shares (equity) or debts. In the first two cases, the ROE will use this capital for growth. In the latter case, the debt required for growth will increase returns, but will not affect equity. In this way, the use of debt will increase return on investment, although the core economy of the business remains unchanged.

Arista Networks' debt and ROE of 29%

Arista Networks is free of net debt, which is positive for shareholders. The high ROE shows that the business is of high quality, but the fact that it was achieved without leverage is really impressive. Ultimately, a company that has no debt is better able to take advantage of future growth opportunities.

The bottom line on ROE

The return on equity is one way to compare the business quality of different companies. Companies that can achieve a high return on equity without excessive debt are generally of good quality. In general, if two companies have the same ROE, I would prefer the one with less debt.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "However, ROE is a useful indicator at the right price To purchase a stock, you need to consider a number of factors that determine the rate of growth of earnings relative to the expectations of earnings growth reflected in the current price. Also note that you may want to check this for FREE Visualization of analyst forecasts for the companyEmagazine.credit-suisse.com/app/art … = 157 & lang = DE Although ROE is a useful indicator of company quality, there are a number of factors you need to look at to find the right price to buy of a stock to determine The earnings should also increase in relation to the expectations of the earnings growth, which are reflected in the current price. Therefore, you should check out this FREE visualization of analyst forecasts for the company.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "But note: Arista Networks may not be the best stock to buy, So take a look free List of interesting companies with high ROE and low debt."data-reactid =" 64 "> Please note the following: Arista Networks may not be the best stock to buy, So take a look free List of interesting companies with high ROE and low debt.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com, This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading."data-reactid =" 65 ">If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com. This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading.