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IBEX (NASDAQ:IBEX) has had a great run on the share market with its stock up by a significant 22% over the last three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to IBEX'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for IBEX
How Is ROE Calculated?
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 IBEX is:
34% = US$37m ÷ US$109m (Based on the trailing twelve months to December 2024).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.34.
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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. 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.
A Side By Side comparison of IBEX's Earnings Growth And 34% ROE
Firstly, we acknowledge that IBEX has a significantly high ROE. Secondly, even when compared to the industry average of 21% the company's ROE is quite impressive. As a result, IBEX's exceptional 39% net income growth seen over the past five years, doesn't come as a surprise.
As a next step, we compared IBEX's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 11%.
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). Doing so will help them establish if the stock's future looks promising or ominous. What is IBEX worth today? The intrinsic value infographic in our free research report helps visualize whether IBEX is currently mispriced by the market.