Jaycorp Berhad (KLSE:JAYCORP) has had a rough three months with its share price down 4.1%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Jaycorp 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.
Check out our latest analysis for Jaycorp Berhad
How To 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 Jaycorp Berhad is:
13% = RM27m ÷ RM209m (Based on the trailing twelve months to January 2023).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.13.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
Jaycorp Berhad's Earnings Growth And 13% ROE
To begin with, Jaycorp Berhad seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 11%. Probably as a result of this, Jaycorp Berhad was able to see a decent growth of 12% over the last five years.
Next, on comparing Jaycorp Berhad's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 14% in the same period.
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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Jaycorp Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.