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Are Robust Financials Driving The Recent Rally In Exxon Mobil Corporation's (NYSE:XOM) Stock?

Simply Wall St · 07/04 10:45

Exxon Mobil (NYSE:XOM) has had a great run on the share market with its stock up by a significant 8.1% over the last month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Exxon Mobil's ROE today.

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.

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How To 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 Exxon Mobil is:

13% = US$35b ÷ US$270b (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.13 in profit.

Check out our latest analysis for Exxon Mobil

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

A Side By Side comparison of Exxon Mobil's Earnings Growth And 13% ROE

To begin with, Exxon Mobil seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 13%. This probably goes some way in explaining Exxon Mobil's significant 35% net income growth over the past five years amongst other factors. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

We then performed a comparison between Exxon Mobil's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 37% in the same 5-year period.

past-earnings-growth
NYSE:XOM Past Earnings Growth July 4th 2025

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Exxon Mobil's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Exxon Mobil Making Efficient Use Of Its Profits?

Exxon Mobil has a three-year median payout ratio of 41% (where it is retaining 59% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Exxon Mobil is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Exxon Mobil 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. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 44% of its profits over the next three years. Accordingly, forecasts suggest that Exxon Mobil's future ROE will be 15% which is again, similar to the current ROE.

Summary

Overall, we are quite pleased with Exxon Mobil's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. 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.