Most readers would already be aware that Visdynamics Holdings Berhad's (KLSE:VIS) stock increased significantly by 6.5% over the past month. 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. Specifically, we decided to study Visdynamics Holdings Berhad's ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Visdynamics Holdings Berhad
How Do You 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 Visdynamics Holdings Berhad is:
7.0% = RM4.6m ÷ RM67m (Based on the trailing twelve months to January 2024).
The 'return' is the amount earned after tax over the last twelve months. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.07 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. 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.
Visdynamics Holdings Berhad's Earnings Growth And 7.0% ROE
At first glance, Visdynamics Holdings Berhad's ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 7.0%. Having said that, Visdynamics Holdings Berhad has shown a modest net income growth of 7.1% over the past five years. Considering the moderately low ROE, it is quite possible that there might be some 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 Visdynamics Holdings Berhad's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 13% in the same period.