Kimly (Catalist:1D0) has had a great run on the share market with its stock up by a significant 8.2% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Kimly's ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Kimly is:
19% = S$36m ÷ S$190m (Based on the trailing twelve months to September 2024).
The 'return' is the yearly profit. That means that for every SGD1 worth of shareholders' equity, the company generated SGD0.19 in profit.
View our latest analysis for Kimly
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.
A Side By Side comparison of Kimly's Earnings Growth And 19% ROE
To begin with, Kimly seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 7.0%. This certainly adds some context to Kimly's decent 8.4% net income growth seen over the past five years.
As a next step, we compared Kimly'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 32% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is 1D0 worth today? The intrinsic value infographic in our free research report helps visualize whether 1D0 is currently mispriced by the market.