Most readers would already know that the Medacta Group (VTX:MOVE) share price has increased by a significant 12% over the past three months. Considering the company's impressive performance, we decided to take a closer look at its financial metrics, as a company's financial health over the long term usually drives market results. In particular, I would like to pay attention to Medacta Group's ROE today.
Return on equity or ROE tests how effectively a company is growing its value and managing investors' money. In other words, ROE shows the profit generated per dollar of a shareholder's investment.
Check out our latest analysis for Medacta Group.
How do you calculate return on equity?
of Formula for calculating return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Medacta Group's ROE is:
17% = €50 million ÷ €298 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 CHF 1 a shareholder invests, the company will generate a profit of CHF 0.17 for him.
Why is ROE important for profit growth?
So far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Generally speaking, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
Medacta Group's revenue growth and 17% ROE
First, Medacta Group's ROE looks acceptable. His ROE for the company looks pretty good, especially when compared to the industry average of 13%. Perhaps as a result of this, Medacta Group has been able to grow at a respectable 16% over the past five years.
We then compare it to the industry's net income growth rate, which is great to see that Medacta Group's growth rate is quite high when compared to the industry average growth rate of 11% over the same period.
Earnings growth is a big factor in stock valuation. Investors should check whether expected earnings growth or decline has been factored in in any case. By doing so, you can find out if the stock is headed for clear blue waters or if a swamp awaits. What is MOVE worth today? The intrinsic value infographic in our free research report helps you visualize whether MOVE is currently mispriced in the market.
Is Medacta Group using its profits efficiently?
In Medacta Group's case, its considerable earnings growth can probably be explained by its low three-year median payout ratio of 22% (or retention rate of 78%). This suggests that the company invests most of its profits into growing its business. .
Medacta Group has been growing its earnings, but it only recently started paying a dividend. The company most likely decided to impress new and existing shareholders with the dividend. We checked the latest analyst consensus data and found that the company is expected to continue paying out around 23% of its profit over the next three years. However, Medacta Group's ROE is expected to rise to 22%, although no change is expected to the dividend payout ratio.
conclusion
Overall, we're pretty happy with Medacta Group's performance. 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 latest analyst forecasts suggest that the company's revenue will continue to grow. To know more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts 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.
