Rambus (NASDAQ:RMBS) has had a great run on the share market with its stock up by a significant 20% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Rambus’ 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.

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How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Rambus is:

18% = US$207m ÷ US$1.2b (Based on the trailing twelve months to March 2025).

The ‘return’ is the profit over the last twelve months. That means that for every $1 worth of shareholders’ equity, the company generated $0.18 in profit.

View our latest analysis for Rambus

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. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Rambus’ Earnings Growth And 18% ROE

At first glance, Rambus seems to have a decent ROE. On comparing with the average industry ROE of 12% the company’s ROE looks pretty remarkable. This certainly adds some context to Rambus’ exceptional 66% net income growth seen over the past five years. However, there could also be other causes behind this growth. Such as – high earnings retention or an efficient management in place.

We then compared Rambus’ net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 11% in the same 5-year period.

NasdaqGS:RMBS Past Earnings Growth July 27th 2025

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock’s future looks promising or ominous. Is RMBS fairly valued? This infographic on the company’s intrinsic value has everything you need to know.