Tootsie Roll Industries (NYSE:TR) has had a rough three months with its share price down 7.3%. However, stock prices are usually driven by a company's financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Tootsie Roll Industries' ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
How Do You Calculate Return On Equity?
Return on equity 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 Tootsie Roll Industries is:
10% = US$94m ÷ US$918m (Based on the trailing twelve months to September 2025).
The 'return' is the profit over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.10 in profit.
View our latest analysis for Tootsie Roll Industries
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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.
Tootsie Roll Industries' Earnings Growth And 10% ROE
At first glance, Tootsie Roll Industries' ROE doesn't look very promising. Although a closer study shows that the company's ROE is higher than the industry average of 8.5% which we definitely can't overlook. Consequently, this likely laid the ground for the decent growth of 11% seen over the past five years by Tootsie Roll Industries. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Hence there might be some other aspects that are causing earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.
Next, on comparing Tootsie Roll Industries' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 9.6% over the last few years.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Tootsie Roll Industries is trading on a high P/E or a low P/E , relative to its industry.
Is Tootsie Roll Industries Making Efficient Use Of Its Profits?
With a three-year median payout ratio of 29% (implying that the company retains 71% of its profits), it seems that Tootsie Roll Industries is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.
Additionally, Tootsie Roll Industries has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.
Summary
In total, we are pretty happy with Tootsie Roll Industries' performance. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate.
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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.
