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With its stock down 7.5% over the past month, it is easy to disregard YOC (ETR:YOC). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study YOC'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.
View our latest analysis for YOC
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for YOC is:
73% = €4.0m ÷ €5.4m (Based on the trailing twelve months to June 2024).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.73 in profit.
What Is The Relationship Between ROE And 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 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.
YOC's Earnings Growth And 73% ROE
To begin with, YOC has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 33% the company's ROE is quite impressive. Under the circumstances, YOC's considerable five year net income growth of 45% was to be expected.
As a next step, we compared YOC'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 22%.
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. 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 YOC's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.