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Kiwetinohk Energy's (TSE:KEC) stock is up by a considerable 10% over the past three months. 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. In this article, we decided to focus on Kiwetinohk Energy's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. 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 Kiwetinohk Energy
How To 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 Kiwetinohk Energy is:
3.0% = CA$21m ÷ CA$696m (Based on the trailing twelve months to June 2024).
The 'return' is the income the business earned over the last year. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.03.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Kiwetinohk Energy's Earnings Growth And 3.0% ROE
It is hard to argue that Kiwetinohk Energy's ROE is much good in and of itself. Even compared to the average industry ROE of 9.7%, the company's ROE is quite dismal. In spite of this, Kiwetinohk Energy was able to grow its net income considerably, at a rate of 58% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing with the industry net income growth, we found that Kiwetinohk Energy's growth is quite high when compared to the industry average growth of 38% in the same period, which is great to see.
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). This then helps them determine if the stock is placed for a bright or bleak future. Is Kiwetinohk Energy fairly valued compared to other companies? These 3 valuation measures might help you decide.