DKSH Holdings (Malaysia) Berhad's (KLSE:DKSH) stock up by 6.3% over the past three months. 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. Particularly, we will be paying attention to DKSH Holdings (Malaysia) Berhad's ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for DKSH Holdings (Malaysia) Berhad
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for DKSH Holdings (Malaysia) Berhad is:
12% = RM114m ÷ RM932m (Based on the trailing twelve months to March 2024).
The 'return' is the yearly profit. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.12 in profit.
What Is The Relationship Between ROE And 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
DKSH Holdings (Malaysia) Berhad's Earnings Growth And 12% ROE
At first glance, DKSH Holdings (Malaysia) Berhad seems to have a decent ROE. On comparing with the average industry ROE of 5.2% the company's ROE looks pretty remarkable. Probably as a result of this, DKSH Holdings (Malaysia) Berhad was able to see an impressive net income growth of 25% over the last five years. We believe that there might also 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 DKSH Holdings (Malaysia) 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 17%.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is DKSH worth today? The intrinsic value infographic in our free research report helps visualize whether DKSH is currently mispriced by the market.