DynaFront Holdings Berhad's (KLSE:DYNAFNT) stock was mostly flat over the past week. However, the company's key financials probably have more to say so you may want to give the company a closer look given that stock prices usually follow the long-term financial performance of a business. In this article, we decided to focus on DynaFront Holdings Berhad's ROE.
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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for DynaFront Holdings Berhad
How To Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for DynaFront Holdings Berhad is:
8.5% = RM1.8m ÷ RM21m (Based on the trailing twelve months to June 2024).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.08 in profit.
What Has ROE Got To Do With 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 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.
A Side By Side comparison of DynaFront Holdings Berhad's Earnings Growth And 8.5% ROE
When you first look at it, DynaFront Holdings Berhad's ROE doesn't look that attractive. However, given that the company's ROE is similar to the average industry ROE of 10.0%, we may spare it some thought. Having said that, DynaFront Holdings Berhad has shown a modest net income growth of 16% over the past five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.
Next, on comparing DynaFront Holdings 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 13% over the last few years.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about DynaFront Holdings Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.