It is hard to get excited after looking at Kerjaya Prospek Group Berhad's (KLSE:KERJAYA) recent performance, when its stock has declined 4.2% over the past three months. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Kerjaya Prospek Group Berhad's ROE in this article.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Kerjaya Prospek Group Berhad

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Kerjaya Prospek Group Berhad is:

9.2% = RM115m ÷ RM1.3b (Based on the trailing twelve months to December 2022).

The 'return' is the yearly profit. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.09 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Kerjaya Prospek Group Berhad's Earnings Growth And 9.2% ROE

When you first look at it, Kerjaya Prospek Group Berhad's ROE doesn't look that attractive. However, the fact that the its ROE is quite higher to the industry average of 4.4% doesn't go unnoticed by us. However, Kerjaya Prospek Group Berhad's five year net income decline rate was 6.6%. Bear in mind, the company does have a slightly low ROE. It is just that the industry ROE is lower. So that could be one of the factors that are causing earnings growth to shrink.

Furthermore, even when compared to the industry, which has been shrinking its earnings at a rate 5.3% in the same period, we found that Kerjaya Prospek Group Berhad's performance is pretty disappointing, as it suggests that the company has been shrunk its earnings at a rate faster than the industry.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Kerjaya Prospek Group Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.