Eco World Development Group Berhad's (KLSE:ECOWLD) share price has increased by a significant 46% over the past three months. But markets usually pay for long-term fundamentals, and in this case they don't look very promising, so we wanted to take a closer look at its key financial indicators. In particular, today we will pay attention to Eco World Development Group 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 Eco World Development Group Berhad.
How do I calculate return on equity?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Eco World Development Group Berhad's ROE is:
4.2% = RM202m ÷ RM4.8b (Based on trailing 12 months to January 2024).
“Return” is the profit over the past 12 months. One way he conceptualizes this is that for every RM1 of shareholders' equity, the company made a profit of MYR0.04.
What relationship does ROE have with profit growth?
It has already been established that ROE serves as an indicator of how efficiently a company will generate future 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 everything else remains constant, the higher the ROE and profit retention, the higher the company's growth rate compared to companies that don't necessarily have these characteristics.
Eco World Development Group Berhad's earnings growth and ROE 4.2%
As you can see, Eco World Development Group Berhad's ROE looks quite low. We also note that the company's ROE is in line with the industry average of 4.2%. Therefore, Eco World Development Group Berhad's low net income growth rate of 4.2% over the past five years could be explained by, among other things, his low ROE.
As a next step, we compared Eco World Development Group Berhad's net income growth with the industry, and we were disappointed to find that the company's growth rate was lower than the industry average growth rate of 5.7% over the same period.
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). Doing so will help you determine whether a stock's future is promising or ominous. Is Eco World Development Group Berhad valued significantly compared to other companies? These 3 metrics can help you decide.
Does Eco World Development Group Berhad reinvest its profits efficiently?
Eco World Development Group Berhad's median three-year dividend payout ratio is 74% (meaning it only retained 26% of its profits), meaning it paid out most of its profits to shareholders as dividends. To do. Revenue growth is low.
Furthermore, Eco World Development Group Berhad has been paying dividends for at least 10 years, suggesting that continuing to pay dividends is far more important to management, even if it comes at the expense of business growth. Based on the latest analyst forecasts, the company's future payout ratio over the next three years is expected to remain stable at 61%. In any case, although the dividend payout ratio is not expected to change significantly, Eco World Development Group Berhad's future ROE is expected to increase to 6.1%.
conclusion
Overall, Eco World Development Group Berhad's performance has been quite disappointing. The company's earnings growth has been slow because very little of its profits are retained, and even when they are retained, they are reinvested at very low rates of return. That said, the company's earnings are expected to accelerate, according to the latest industry analyst forecasts. 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.
