Shockwave Medical Inc. (NASDAQ:SWAV)

The return on equity (ROE) exhibited significant fluctuations between 2019 and 2023. Initially, the company experienced negative ROE values, followed by substantial improvement and subsequent moderation.

Net Income and ROE Relationship

A strong correlation exists between net income and ROE. The negative net income reported in 2019 and 2020 resulted in negative ROE values of -26.53% and -29.11%, respectively. As net income improved in 2021, the ROE became less negative, reaching -3.78%. The substantial increase in net income to US$215,996 thousand in 2022 drove a significant positive change in ROE, reaching 42.24%. While net income decreased in 2023, ROE remained positive at 22.03%, indicating continued profitability relative to equity.

Stockholders’ equity consistently increased throughout the period. From US$192,653 thousand in 2019, it rose to US$668,677 thousand in 2023. This growth in equity, coupled with the changes in net income, influenced the observed ROE trends.

ROE Trend Analysis

The ROE demonstrates a clear progression from substantial losses to significant gains. The period between 2019 and 2020 showed a worsening ROE, indicating increasing losses relative to equity. The years 2021 and 2022 represent a turnaround, with ROE moving from negative to a high of 42.24%. The decrease in ROE to 22.03% in 2023, while still positive, suggests a moderation of the rapid improvement seen in the prior year. This moderation is likely attributable to the decrease in net income.

The substantial growth in stockholders’ equity appears to have partially offset the decrease in net income in 2023, preventing a more significant decline in ROE. Overall, the trend suggests improving financial performance, although the rate of improvement has slowed recently.