Is ADT Inc.'s (NYSE:ADT) 16% ROE Strong Compared To Its Industry?
While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. By way of learning-by-doing, we'll look at ROE to gain a better understanding of ADT Inc. (NYSE:ADT).
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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
We've discovered 1 warning sign about ADT. View them for free.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for ADT is:
16% = US$619m ÷ US$3.8b (Based on the trailing twelve months to December 2024).
The 'return' is the profit over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.16.
View our latest analysis for ADT
Arguably the easiest way to assess company's ROE is to compare it with the average in its industry. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. You can see in the graphic below that ADT has an ROE that is fairly close to the average for the Consumer Services industry (16%).
So while the ROE is not exceptional, at least its acceptable. While at least the ROE is not lower than the industry, its still worth checking what role the company's debt plays as high debt levels relative to equity may also make the ROE appear high. If a company takes on too much debt, it is at higher risk of defaulting on interest payments.
Most companies need money -- from somewhere -- to grow their profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. That will make the ROE look better than if no debt was used.
ADT does use a high amount of debt to increase returns. It has a debt to equity ratio of 2.01. There's no doubt its ROE is decent, but the very high debt the company carries is not too exciting to see. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it.
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.
But ROE is just one piece of a bigger puzzle, since high quality businesses often trade on high multiples of earnings. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. So you might want to check this FREE visualization of analyst forecasts for the company.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
Have 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.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Upturn
an hour ago
- Business Upturn
OGN FRAUD ALERT: Organon & Co. Investors are Reminded of Ongoing Securities Fraud Class Action — Contact BFA Law by July 22 Legal Deadline (NYSE:OGN)
NEW YORK, June 22, 2025 (GLOBE NEWSWIRE) — Leading securities law firm Bleichmar Fonti & Auld LLP announces that a lawsuit has been filed against Organon & Co. (NYSE: OGN) and certain of the Company's senior executives for potential violations of the federal securities laws. If you invested in Organon you are encouraged to obtain additional information by visiting Investors have until July 22, 2025, to ask the Court to be appointed to lead the case. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of investors who purchased Organon securities. The case is pending in the U.S. District Court for the District of New Jersey and is captioned: Hauser v. Organon & Co., et al. , No. 25-cv-05322. Why was Organon Sued for Securities Fraud? Organon is a global healthcare company focused on women's health that has historically rewarded its shareholders with a healthy dividend. In October 2024, Organon completed a $1.2 billion acquisition of Dermavant, a biopharmaceutical company focused on dermatological conditions. As alleged, while the acquisition increased Organon's debt, the Company assured investors it would maintain its dividend, which Organon asserted was its '#1 capital allocation priority.' In truth, Organon had shifted its capital allocation priority after the Dermavant acquisition to focus on reducing its debt, ultimately leading the Company to severely cut its dividend. The Stock Declines as the Truth is Revealed On May 1, 2025, Organon announced that management reset the Company's dividend payout from $0.28 per share to $0.02 per share. Organon's CEO explained that the Company 'reset our capital allocation priorities to accelerate progress towards deleveraging' and that '[b]y deleveraging more rapidly, we will continue to strengthen the future prospects of the company.' Organon's CFO added, '[t]he biggest issues we face . . . relate to managing our leverage and relate to growth. And we need capital to solve both of those issues, and so returning capital to shareholders is right now, less of a priority.' On this news, the price of Organon stock declined roughly 27%, from $12.93 per share on April 30, 2025, to $9.45 per share on May 1, 2025. Click here if you suffered losses: What Can You Do? If you invested in Organon you may have legal options and are encouraged to submit your information to the firm. All representation is on a contingency fee basis, there is no cost to you. Shareholders are not responsible for any court costs or expenses of litigation. The firm will seek court approval for any potential fees and expenses. Submit your information by visiting: Or contact:Ross Shikowitz [email protected] 212-789-3619
Business Upturn
an hour ago
- Business Upturn
RDDT FRAUD ALERT: Reddit, Inc. Investors are Reminded of Ongoing Securities Fraud Class Action — Contact BFA Law by August 18 Legal Deadline (NYSE:RDDT)
NEW YORK, June 22, 2025 (GLOBE NEWSWIRE) — Leading securities law firm Bleichmar Fonti & Auld LLP announces that a lawsuit has been filed against Reddit, Inc. (NYSE: RDDT) and certain of the Company's senior executives for potential violations of the federal securities laws. If you invested in Reddit, you are encouraged to obtain additional information by visiting: Investors have until August 18, 2025, to ask the Court to be appointed to lead the case. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of investors who purchased Reddit securities. The case is pending in the U.S. District Court for the Northern District of California and is captioned Tamraz, Jr. v. Reddit, Inc., at al. , No. 25-cv-05144. Why was Reddit Sued for Securities Fraud? Reddit owns and operates the eponymous social news aggregation, forum, and social media platform. Reddit receives a significant portion of its user traffic from individuals seeking answers to questions using Google Search. The complaint alleges that Reddit misrepresented and downplayed the impact that Google's use of Artificial Intelligence ('AI') technology in Google's search results had on Reddit's user growth. In truth, Google's use of AI dented Reddit's user growth by eliminating the need for individuals to visit and click through to Reddit to get answers to their questions. Rather, the answers appeared through Google's AI search results. The Stock Declines as the Truth is Revealed On May 1, 2025, Reddit reported a significant slowdown in daily active user growth. On this news, the price of Reddit stock declined $4.96 per share, or more than 4%, from $118.79 per share on May 1, 2025, to $113.83 per share on May 2, 2025. Then, on May 21, 2025, Wall Street analyst Baird cut its Reddit stock price target over concerns that Google's AI capabilities are stifling Reddit's user growth. On this news, the price of Reddit stock fell $9.79 per share, or over 9%, from $105.64 per share on May 20, 2025, to $95.85 per share on May 21, 2025. Click here for more information: What Can You Do? If you invested in Reddit you may have legal options and are encouraged to submit your information to the firm. All representation is on a contingency fee basis, there is no cost to you. Shareholders are not responsible for any court costs or expenses of litigation. The firm will seek court approval for any potential fees and expenses. Submit your information by visiting: Or contact:Ross Shikowitz [email protected] 212-789-3619
Business Upturn
an hour ago
- Business Upturn
CIVI FRAUD ALERT: Civitas Resources, Inc. Investors are Reminded of Ongoing Securities Fraud Class Action — Contact BFA Law by July 1 Legal Deadline (NYSE:CIVI)
NEW YORK, June 22, 2025 (GLOBE NEWSWIRE) — Leading securities law firm Bleichmar Fonti & Auld LLP announces that a lawsuit has been filed against Civitas Resources, Inc. (NYSE: CIVI) and certain of the Company's senior executives for potential violations of the federal securities laws. If you invested in Civitas you are encouraged to obtain additional information by visiting Investors have until July 1, 2025, to ask the Court to be appointed to lead the case. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of investors who purchased Civitas securities. The case is pending in the U.S. District Court for the District of New Jersey and is captioned Lin v. Civitas Resources., et al. , No. 25-cv-03791. Why was Civitas Sued for Securities Fraud? Civitas is an oil and gas exploration and production company with its key assets located in the Denver-Julesburg Basin in Colorado and the Permian Basin in Texas and New Mexico. The complaint alleges that Civitas stated that both basins had 'enhanced recovery potential' and that it had 'driven production ahead of plans,' while touting 'enhanced margins through reduced operating costs' and insisting that 'costs are below expectations.' In truth, the Company's oil production peaked in 2024, and increasing production would require Civitas to spend significant capital to acquire additional land, driving up costs. The Stock Declines as the Truth is Revealed On February 24, 2025, Civitas announced disappointing Q4 and full year 2024 results, and reduced its oil production guidance. The Company explained that oil production had peaked and it would need to spend hundreds of millions of dollars to acquire thousands of acres of new land to produce more oil. Civitas also announced that it was implementing a 10% reduction in its workforce to 'solidify the Company's low-cost structure.' On the same day, Civitas announced the immediate firings of its Chief Operating Officer and Chief Transformation Officer. On this news, the price of Civitas stock declined more than 18%, from a closing price of $49.30 per share on February 24, 2025, to $40.35 per share on February 25, 2025. Click here if you suffered losses: What Can You Do? If you invested in Civitas you may have legal options and are encouraged to submit your information to the firm. All representation is on a contingency fee basis, there is no cost to you. Shareholders are not responsible for any court costs or expenses of litigation. The firm will seek court approval for any potential fees and expenses. Submit your information by visiting: Or contact:Ross Shikowitz [email protected] 212-789-3619
