United U-LI Corporation Berhad (KLSE:ULICORP) has had a great run on the share market with its stock up by a significant 47% over the last month. 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. Particularly, we will be paying attention to United U-LI Corporation Berhad's ROE today.
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 United U-LI Corporation Berhad
How Do You Calculate Return On Equity?
ROE 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 United U-LI Corporation Berhad is:
11% = RM40m ÷ RM364m (Based on the trailing twelve months to June 2023).
The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.11 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. 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.
United U-LI Corporation Berhad's Earnings Growth And 11% ROE
When you first look at it, United U-LI Corporation Berhad's ROE doesn't look that attractive. Although a closer study shows that the company's ROE is higher than the industry average of 7.4% which we definitely can't overlook. Particularly, the substantial 57% net income growth seen by United U-LI Corporation Berhad over the past five years is impressive . That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. So, there might well be other reasons for the earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.
Next, on comparing with the industry net income growth, we found that United U-LI Corporation Berhad's growth is quite high when compared to the industry average growth of 33% in the same period, which is great to see.