The Beeks Financial Cloud Group (LON:BKS) share price has increased by a significant 65% over the past three months. However, it is questionable whether the company's inconsistent financials will negatively impact the current share price momentum. Specifically, we decided to examine Beeks Financial Cloud Group's ROE in this article.
Return on equity or ROE tests how effectively a company is growing its value and managing investors' money. More simply, it measures a company's profitability in relation to shareholder equity.
Check out our latest analysis for Beeks Financial Cloud Group.
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, Beeks Financial Cloud Group's ROE is:
1.7% = GBP 590,000 ÷ GBP 34 million (Based on the trailing twelve months to December 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 £1 worth of shares, the company could earn him £0.02 in profit.
What relationship does ROE have with 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. All else being equal, companies with higher return on equity and profit retention typically have higher growth rates compared to companies that don't have the same characteristics.
Beeks Financial Cloud Group's revenue growth and ROE 1.7%
As you can see, Beeks Financial Cloud Group's ROE seems quite low. Even compared to the industry average ROE of 14%, the company's ROE is quite pathetic. Therefore, it might not be wrong to say that Beeks Financial Cloud Group's 19% decline in net profit over five years is probably a result of his declining ROE. However, other factors may reduce revenue. For example, a company's capital allocation may be inappropriate, or a company's dividend payout ratio may be very high.
Having said that, we compare Beeks Financial Cloud Group's performance with the industry and find that while the company has shrunk its profits, the industry has grown them at a rate of 16% over the same five-year period. I understand, I was concerned.
Earnings growth is an important metric to consider when evaluating a stock. 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. Is Beeks Financial Cloud Group fairly valued compared to other companies? These 3 metrics may help you decide.
Is Beeks Financial Cloud Group effectively utilizing its retained earnings?
The company has paid some dividends in the past, but currently does not. This means that potentially all profits are being reinvested into the business.
summary
Overall, we feel that Beeks Financial Cloud Group's performance is open to many interpretations. Even if it appears to be retaining most of its profits, investors may not be benefiting from reinvestment after all, given the low ROE. Low revenue growth suggests that our theory is correct. Having said that, a look at current analyst forecasts shows that the company's earnings growth is expected to improve significantly. 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 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.
