It's hard to get excited about ECA Integrated Solution Berhad's (KLSE:ECA) stock's recent performance, which has seen its share price drop 24% over the past three months. However, stock prices are usually driven by a company's long-term financial performance, which in this case looks very promising. In particular, today we will pay attention to ECA Integrated Solution Berhad's ROE.
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. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for ECA Integrated Solutions Berhad.
How is ROE calculated?
Return on equity can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, ECA Integrated Solutions Berhad's ROE is:
18% = RM11m ÷ RM61m (Based on trailing 12 months to October 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. Another way to think of it is that for every RM1 worth of shares, the company allowed him to earn a profit of RM0.18.
What relationship does ROE have with 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. 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.
ECA integrated solution Berhad revenue growth and ROE 18%
At first glance, ECA Integrated Solution Berhad appears to have a decent ROE. His ROE for the company looks pretty good, especially when compared to the industry average of 8.4%. Perhaps as a result of this, ECA Integrated Solution Berhad has been able to grow its net income by an impressive 32% over the past five years. We believe that other factors may also be at play here. For example: – Maintaining high profits and efficient management.
As a next step, we compared ECA Integrated Solution Berhad's net income growth with its industry. We're pleased to note that the company's growth rate is higher than the industry average of 8.1%.
Earnings growth is an important metric to consider when evaluating a stock. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). That way, you'll know if the stock is headed for clear blue waters or if a swamp awaits. If you're curious about ECA Integrated Solution Berhad's valuation, check out this gauge of its price-to-earnings ratio compared to its industry.
ECA Integrated Solutions Is Berhad effectively utilizing its retained earnings?
ECA Integrated Solution Berhad currently does not pay dividends. This essentially means that you are reinvesting all of your profits back into the business. This definitely contributes to the high profit growth rate discussed above.
summary
Overall, we are very satisfied with the performance of our ECA integration solution Berhad. Specifically, we like that the company reinvests a huge amount of its profits at a high rate of return. Of course, this significantly increased the company's revenue. Having said that, a check of the latest analyst forecasts indicates that the company's future revenue growth is expected to slow. 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 using only unbiased methodologies, based on historical data and analyst forecasts, 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.
