Is Econ Healthcare (Asia) Limited's (Catalist:EHG) Stock's Recent Performance A Reflection Of Its Financial Health?

Econ Healthcare (Asia)'s (Catalist:EHG) stock is up by 5.7% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Econ Healthcare (Asia)'s ROE in this article.

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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Econ Healthcare (Asia)

How Is ROE Calculated?

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 Econ Healthcare (Asia) is:

14% = S$6.3m ÷ S$44m (Based on the trailing twelve months to March 2024).

The 'return' is the income the business earned over the last year. That means that for every SGD1 worth of shareholders' equity, the company generated SGD0.14 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Econ Healthcare (Asia)'s Earnings Growth And 14% ROE

To begin with, Econ Healthcare (Asia) seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 9.6%. This certainly adds some context to Econ Healthcare (Asia)'s decent 7.7% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Econ Healthcare (Asia)'s reported growth was lower than the industry growth of 15% over the last few years, which is not something we like to see.

past-earnings-growth
Catalist:EHG Past Earnings Growth June 6th 2024

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 Econ Healthcare (Asia) is trading on a high P/E or a low P/E, relative to its industry.