Is Loar Holdings Inc.'s (NYSE:LOAR) ROE Of 5.5% Concerning?

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 Loar Holdings Inc. (NYSE:LOAR). Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. 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 Loar Holdings is:5.5% = US$63m ÷ US$1.2b (Based on the trailing twelve months to September 2025). The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.05 in profit. See our latest analysis for Loar Holdings Does Loar Holdings Have A Good ROE? One simple way to determine if a company has a good return on equity is to compare it to the average for its industry. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. If you look at the image below, you can see Loar Holdings has a lower ROE than the average (11%) in the Aerospace & Defense industry classification. NYSE:LOAR Return on Equity January 15th 2026 Unfortunately, that's sub-optimal. However, a low ROE is not always bad. If the company's debt levels are moderate to low, then there's still a chance that returns can be improved via the use of financial leverage. When a company has low ROE but high debt levels, we would be cautious as the risk involved is too high. How Does Debt Impact ROE? Companies usually need to invest money to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. In this manner the use of debt will boost ROE, even though the core economics of the business stay the same. Loar Holdings' Debt And Its 5.5% ROE Loar Holdings has a debt to equity ratio of 0.24, which is far from excessive. Its ROE isn't particularly impressive, but the debt levels are quite modest, so the business probably has some real potential. Judicious use of debt to improve returns can certainly be a good thing, although it does elevate risk slightly and reduce future optionality. Conclusion Return on equity is one way we can compare its business quality of different companies. In our books, the highest quality companies have high return on equity, despite low debt. All else being equal, a higher ROE is better. Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So I think it may be worth checking this free report on analyst forecasts for the company. Of course Loar Holdings may not be the best stock to buy. So you may wish to see this free collection of other companies that have high ROE and low debt.