With its stock down 3.8% over the past month, it is easy to disregard Minox International Group Berhad (KLSE:MINOX). It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. Specifically, we decided to study Minox International Group Berhad's ROE in this article.
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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Minox International Group Berhad
How Do You Calculate Return On Equity?
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 Minox International Group Berhad is:
3.1% = RM2.4m ÷ RM77m (Based on the trailing twelve months to March 2024).
The 'return' is the profit over the last twelve months. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.03 in profit.
What Is The Relationship Between ROE And 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.
Minox International Group Berhad's Earnings Growth And 3.1% ROE
It is quite clear that Minox International Group Berhad's ROE is rather low. Not just that, even compared to the industry average of 5.7%, the company's ROE is entirely unremarkable. Therefore, Minox International Group Berhad's flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.
As a next step, we compared Minox International Group Berhad'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 37% in the same period.
Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Minox International Group Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.