Beacon Lighting Group (ASX:BLX) has had a strong run on the stock market, with its share price up a significant 30% in the past three months. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. Specifically, we decided to examine his ROE for Beacon Lighting Group in this article.
Return on equity or ROE is a key measure used to evaluate how efficiently a company's management is utilizing the company's capital. In other words, ROE shows the return that each dollar of a shareholder's investment generates.
Check out our latest analysis for Beacon Lighting Group.
How is ROE calculated?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Beacon Lighting Group's ROE is:
19% = AUD 31 million ÷ AUD 160 million (based on the trailing twelve months to December 2023).
“Revenue” is the income a company has earned over the past year. Another way to think of it is that for every A$1 worth of shares, the company was able to earn him A$0.19 in profit.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.
Beacon Lighting Group's revenue growth and ROE 19%
At first glance, Beacon Lighting Group appears to have a decent ROE. Also, when we compare it to its industry, we find that its industry has a similar average ROE of 17%. This probably goes some way to explaining Beacon Lighting Group's modest 15% growth over the past five years, among other factors.
We then compared Beacon Lighting Group's net income growth rate with the industry and found that the company's reported growth rate is similar to the industry average growth rate of 18% over the past few years.
The foundations that give a company value have a lot to do with its revenue growth. 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. Is the market factoring in BLX's future prospects? Find out in our latest Intrinsic Value infographic research report.
Is Beacon Lighting Group using its profits efficiently?
Beacon Lighting Group's median three-year dividend payout ratio is a very high 52%, which means that only 48% is left to reinvest in the business. This means that the company has been able to achieve decent profit growth even though it is returning most of its profits to shareholders.
Additionally, Beacon Lighting Group has been paying dividends for at least 10 years. This means that the company is quite serious about sharing profits with shareholders. According to our latest analyst data, the company's future dividend payout ratio is expected to rise to 69% over the next three years. However, even if the expected dividend payout ratio increases, ROE is not expected to change significantly.
summary
Overall, we feel Beacon Lighting Group is doing very well. In particular, the high ROE is noteworthy, and is thought to be the basis for the significant profit growth. But the company keeps a small portion of its profits. That means the company was able to grow its revenue despite this, so that's not too bad. That said, the company's revenue growth is expected to slow, according to the latest industry analyst forecasts. To know more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
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.
