Topvision Eye Specialist Berhad's (KLSE:0332) stock was mostly flat over the past three months. But since value is created over the longer term, it's worth studying the company's strong financials to see what the future could hold. Particularly, we will be paying attention to Topvision Eye Specialist Berhad's ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Topvision Eye Specialist Berhad
How To 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 Topvision Eye Specialist Berhad is:
13% = RM4.4m ÷ RM34m (Based on the trailing twelve months to September 2024).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.13 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. 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.
Topvision Eye Specialist Berhad's Earnings Growth And 13% ROE
To start with, Topvision Eye Specialist Berhad's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 12%. Consequently, this likely laid the ground for the impressive net income growth of 22% seen over the past five years by Topvision Eye Specialist Berhad. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing Topvision Eye Specialist Berhad's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 21% over the last few years.
Earnings growth is a huge factor in stock valuation. 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 Topvision Eye Specialist Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.