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Avino Silver & Gold Mines (TSE:ASM) has had a great run on the share market with its stock up by a significant 85% over the last three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Avino Silver & Gold Mines' ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
How Do You 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 Avino Silver & Gold Mines is:
6.5% = US$8.1m ÷ US$125m (Based on the trailing twelve months to December 2024).
The 'return' is the income the business earned over the last year. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.06.
See our latest analysis for Avino Silver & Gold Mines
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.
Avino Silver & Gold Mines' Earnings Growth And 6.5% ROE
When you first look at it, Avino Silver & Gold Mines' ROE doesn't look that attractive. Next, when compared to the average industry ROE of 10.0%, the company's ROE leaves us feeling even less enthusiastic. However, we we're pleasantly surprised to see that Avino Silver & Gold Mines grew its net income at a significant rate of 57% in the last five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing with the industry net income growth, we found that Avino Silver & Gold Mines' growth is quite high when compared to the industry average growth of 21% in the same period, which is great to see.