Most readers will already know that the Lifestyle Communities (ASX:LIC) share price has increased by 6.1% over the last three months. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. Specifically, we decided to investigate Lifestyle Community's ROE in this article.
Return on equity or ROE is a key measure used to evaluate how efficiently a company's management is utilizing the company's capital. More simply, it measures a company's profitability in relation to shareholder equity.
Check out our latest analysis for Lifestyle Community.
How do I calculate return on equity?
of Calculation formula for return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, the ROE for Lifestyle Community is:
16% = AUD 82 million ÷ AUD 525 million (based on the trailing twelve months to June 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. This means that for every A$1 of a shareholder's investment, the company will generate a profit of A$0.16 for him.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company's profitability. Now we need to assess how much profit the company reinvests or “retains” for future growth, which gives us an idea about the company's growth potential. Generally, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
Lifestyle Community Revenue Growth and ROE 16%
Firstly, Lifestyle Communities' ROE looks acceptable. Moreover, his ROE for the company is very good compared to the industry average of his 6.8%. Perhaps this laid the foundation for the modest 15% growth in lifestyle community net income seen over the past five years.
We then compared Lifestyle Communities' net income growth to the industry. The same he found that the company's growth rate was high when compared to the industry where in five years he recorded a growth rate of 12%.
The foundations that give a company value have a lot to do with its revenue growth. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). Doing so will help you determine whether a stock's future is promising or ominous. One good indicator of expected earnings growth is the P/E ratio, which determines the price the market is willing to pay for a stock based on its earnings outlook. So you might want to see whether Lifestyle Community is trading on a higher or lower P/E relative to its industry.
Are lifestyle communities reinvesting profits effectively?
In Lifestyle Communities' case, its considerable earnings growth can probably be explained by its low three-year median dividend payout ratio of 13% (or retention rate of 87%). This suggests that the company is investing most of its profits into profit growth. work.
Additionally, Lifestyle Communities has been paying dividends for eight years. This shows that the company is committed to sharing profits with shareholders. Researching the latest analyst consensus data, we found that the company's future dividend payout ratio is expected to rise to 18% over the next three years. Although the expected dividend payout ratio will increase, ROE is not expected to change significantly.
conclusion
Overall, we feel that the lifestyle community is performing very well. In particular, it's great to see that the company has invested heavily in its business, delivering strong revenue growth along with high rates of return. That said, the company's earnings are expected to accelerate, according to the latest industry analyst forecasts. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company's fundamentals? Click here to be taken to our analyst forecasts page for the company .
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
