Focus Point Holdings Berhad (KLSE:FOCUSP) has had a great run on the share market with its stock up by a significant 6.2% over the last month. 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 Focus Point Holdings Berhad'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
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 Focus Point Holdings Berhad is:
25% = RM33m ÷ RM135m (Based on the trailing twelve months to December 2024).
The 'return' is the yearly profit. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.25 in profit.
Check out our latest analysis for Focus Point Holdings Berhad
What Is The Relationship Between ROE And 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 Focus Point Holdings Berhad's Earnings Growth And 25% ROE
To begin with, Focus Point Holdings Berhad has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 10% the company's ROE is quite impressive. As a result, Focus Point Holdings Berhad's exceptional 29% net income growth seen over the past five years, doesn't come as a surprise.
As a next step, we compared Focus Point Holdings Berhad's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 19%.
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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Focus Point Holdings Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.