Brite-Tech Berhad's (KLSE:BTECH) stock is up by 3.8% over the past month. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Brite-Tech Berhad's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Brite-Tech 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 Brite-Tech Berhad is:

12% = RM9.7m ÷ RM79m (Based on the trailing twelve months to September 2022).

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 MYR0.12 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Brite-Tech Berhad's Earnings Growth And 12% ROE

To begin with, Brite-Tech Berhad seems to have a respectable ROE. On comparing with the average industry ROE of 10% the company's ROE looks pretty remarkable. This certainly adds some context to Brite-Tech Berhad's decent 18% net income growth seen over the past five years.

As a next step, we compared Brite-Tech Berhad's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 3.3%.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Brite-Tech Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Brite-Tech Berhad Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 64% (or a retention ratio of 36%) for Brite-Tech Berhad suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.