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BioRem's (CVE:BRM) stock is up by a considerable 7.4% over the past week. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study BioRem's ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
See our latest analysis for BioRem
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 BioRem is:
52% = CA$5.2m ÷ CA$10.0m (Based on the trailing twelve months to September 2024).
The 'return' is the yearly profit. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.52 in profit.
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. 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 BioRem's Earnings Growth And 52% ROE
To begin with, BioRem has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 9.1% the company's ROE is quite impressive. Under the circumstances, BioRem's considerable five year net income growth of 29% was to be expected.
Next, on comparing with the industry net income growth, we found that BioRem's growth is quite high when compared to the industry average growth of 19% in the same period, which is great to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about BioRem's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.