In This Article:
Most readers would already be aware that M Winkworth's (LON:WINK) stock increased significantly by 5.4% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on M Winkworth's ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for M Winkworth
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 M Winkworth is:
28% = UK£1.9m ÷ UK£6.6m (Based on the trailing twelve months to June 2024).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each £1 of shareholders' capital it has, the company made £0.28 in profit.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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. 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 M Winkworth's Earnings Growth And 28% ROE
First thing first, we like that M Winkworth has an impressive ROE. Secondly, even when compared to the industry average of 6.4% the company's ROE is quite impressive. This probably laid the groundwork for M Winkworth's moderate 8.3% net income growth seen over the past five years.
We then compared M Winkworth's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 3.6% in the same 5-year period.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. What is WINK worth today? The intrinsic value infographic in our free research report helps visualize whether WINK is currently mispriced by the market.