Are Strong Financial Prospects The Force That Is Driving The Momentum In Grand Banks Yachts Limited's SGX:G50) Stock?

editorial-team@simplywallst.com (Simply Wall St)

Sun, Jan 19, 2025, 8:55 PM 3 min read

Grand Banks Yachts' (SGX:G50) stock is up by a considerable 23% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Grand Banks Yachts' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Grand Banks Yachts

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 Grand Banks Yachts is:

25% = S$21m ÷ S$87m (Based on the trailing twelve months to June 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every SGD1 of its shareholder's investments, the company generates a profit of SGD0.25.

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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

Grand Banks Yachts' Earnings Growth And 25% ROE

To begin with, Grand Banks Yachts has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 7.6% also doesn't go unnoticed by us. So, the substantial 53% net income growth seen by Grand Banks Yachts over the past five years isn't overly surprising.

As a next step, we compared Grand Banks Yachts' 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 12%.

past-earnings-growth — SGX:G50 Past Earnings Growth January 20th 2025

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 Grand Banks Yachts''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Grand Banks Yachts Efficiently Re-investing Its Profits?

Grand Banks Yachts has a really low three-year median payout ratio of 20%, meaning that it has the remaining 80% left over to reinvest into its business. So it looks like Grand Banks Yachts is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Grand Banks Yachts is determined to keep sharing its profits with shareholders which we infer from its long history of six years of paying a dividend.

Conclusion

In total, we are pretty happy with Grand Banks Yachts' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. You can see the 3 risks we have identified for Grand Banks Yachts by visiting our risks dashboard for free on our platform here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.