Bermaz Auto Berhad's (KLSE:BAUTO) stock is up by 2.5% over the past month. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Particularly, we will be paying attention to Bermaz Auto Berhad'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for Bermaz Auto Berhad
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 Bermaz Auto Berhad is:
44% = RM388m ÷ RM878m (Based on the trailing twelve months to January 2024).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.44 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
A Side By Side comparison of Bermaz Auto Berhad's Earnings Growth And 44% ROE
Firstly, we acknowledge that Bermaz Auto Berhad has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 12% also doesn't go unnoticed by us. This likely paved the way for the modest 15% net income growth seen by Bermaz Auto Berhad over the past five years.
As a next step, we compared Bermaz Auto Berhad's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 15% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. What is BAUTO worth today? The intrinsic value infographic in our free research report helps visualize whether BAUTO is currently mispriced by the market.