Most readers will already know that the Australian Clinical Laboratories (ASX:ACL) share price has increased by a significant 12% over the past three months. Since the market usually pays for a company's long-term fundamentals, we decided to investigate whether a company's key performance indicators are influencing the market. Specifically, we decided to examine his ROE for Australian Clinical Research Institute in this article.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it receives from its shareholders. Simply put, it is used to evaluate a company's profitability compared to its equity.
See our latest analysis for Australian Clinical Laboratories.
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 Australian Clinical Research Institute is:
21% = AUD 36 million ÷ AUD 173 million (based on the trailing twelve months to June 2023).
“Return” refers to a company's earnings over the past year. This means that for every A$1 a shareholder invests, the company will generate a profit of A$0.21 for him.
What relationship does ROE have with profit growth?
So far, we have learned that ROE is a measure of a company's profitability. Depending on how much of these profits a 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 with both higher return on equity and higher profit retention typically have higher growth rates when compared to companies that don't have the same characteristics.
Australian Clinical Research Institute's revenue growth and ROE of 21%
At first glance, Australian Clinical Research Institute appears to have a decent ROE. His ROE for the company looks pretty good, especially when compared to the industry average of 6.7%. This certainly gives some context to the exceptional 26% growth in Australian Clinical Research Institute's net profit over the past five years. We think there may be other aspects that are positively impacting the company's earnings growth. Maintaining high profits and efficient management, etc.
We then compared Australian Clinical Labs' net income growth to its industry. The same he found that the company's growth rate was higher when compared to the industry where the five-year growth rate was 1.3%.
Earnings growth is an important metric to consider when evaluating a stock. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. Doing so will help you determine whether a stock's future is promising or ominous. Is the market pricing in ACL's future prospects? Find out in our latest Intrinsic Value infographic research report.
Are Australian clinical laboratories using profits effectively?
Australian Clinical Labs's impressive three-year median payout ratio of 51% (retaining only 49% of its profits) means that the company returns most of its profits to shareholders, yet This suggests that we have achieved high growth.
In addition to growing its earnings, Australian Clinical Research Institute only recently started paying a dividend. It's entirely possible that the company was trying to impress shareholders. According to our latest analyst data, the company's future dividend payout ratio is expected to rise to 68% over the next three years. Although the expected dividend payout ratio will increase, ROE is not expected to change significantly.
summary
Overall, we are very satisfied with the performance of Australian Clinical Research Institute. We're particularly impressed with the company's strong earnings growth, which we believe is supported by his high ROE. Although the company pays out most of its earnings as dividends, it has been able to grow its earnings despite this, so this is probably a good sign. Having said that, a review of the latest analyst forecasts indicates that the company's future revenue growth is expected to slow. Learn more about the company's future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about 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.
