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D-BOX Technologies (TSE:DBO) has had a great run on the share market with its stock up by a significant 29% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study D-BOX Technologies' 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.
View our latest analysis for D-BOX Technologies
How Is ROE Calculated?
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 D-BOX Technologies is:
2.4% = CA$281k ÷ CA$12m (Based on the trailing twelve months to June 2024).
The 'return' is the income the business earned over the last year. Another way to think of that is that for every CA$1 worth of equity, the company was able to earn CA$0.02 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. 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. 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.
D-BOX Technologies' Earnings Growth And 2.4% ROE
As you can see, D-BOX Technologies' ROE looks pretty weak. Even when compared to the industry average of 15%, the ROE figure is pretty disappointing. Despite this, surprisingly, D-BOX Technologies saw an exceptional 43% net income growth over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.
As a next step, we compared D-BOX Technologies' 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 19%.
Earnings growth is an important metric to consider when valuing a stock. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if D-BOX Technologies is trading on a high P/E or a low P/E, relative to its industry.