Astramina Group Berhad's (KLSE:ASTRA) stock was mostly flat over the past three months. Regardless, it's worth giving the company a closer given that its key financial performance indicators look pretty strong and that's usually rewarded by the markets in the long-run. In this article, we decided to focus on Astramina Group Berhad's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for Astramina Group Berhad
How To Calculate Return On Equity?
ROE 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 Astramina Group Berhad is:
13% = RM7.3m ÷ RM55m (Based on the trailing twelve months to February 2024).
The 'return' is the yearly profit. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.13 in profit.
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. 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 Astramina Group Berhad's Earnings Growth And 13% ROE
At first glance, Astramina Group Berhad seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 8.4%. This probably laid the ground for Astramina Group Berhad's moderate 12% net income growth seen over the past five years.
We then compared Astramina Group Berhad's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 25% in the same 5-year period, which is a bit concerning.
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. Is Astramina Group Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.