Fugro (AMS:FUR) has been doing well on the stock market, with its share price increasing by a significant 26% over 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. In this article, we decided to focus on his ROE for Fugro.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. Simply put, it is used to evaluate a company's profitability compared to its equity.
Check out our latest analysis for Fugro.
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, the ROE for Fugro is:
20% = €257 million ÷ €1.3 billion (based on the trailing twelve months to December 2023).
“Return” is the profit over the past 12 months. This means that for every €1 of shareholders' equity, the company generated his €0.20 in profit.
What is the relationship between ROE and profit growth rate?
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.
A side-by-side comparison of Fugro's earnings growth and ROE of 20%.
First, Fugro's ROE looks acceptable. His ROE for the company looks pretty good, especially when compared to the industry average of 15%. This probably laid the foundation for the massive 64% growth in Fugro's net income over the past five years. However, there may be other causes behind this growth. For example, the company's management may have made some good strategic decisions, or the company may have a low dividend payout ratio.
We then compared Fugro's net income growth rate to the industry. The same he found that the company's growth rate was high when compared to the industry where in five years he recorded a growth rate of 15%.
Earnings growth is a big factor in stock valuation. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. This can help you decide whether to position the stock for a bright or bleak future. What is his FUR worth today? The intrinsic value infographic in our free research report helps you visualize whether FUR is currently mispriced by the market.
Is Fugro making effective use of its retained earnings?
Fugro does not pay dividends to shareholders. This means that the company reinvests all of its profits back into the business. This is likely what is driving the high earnings growth rate discussed above.
summary
Overall, we're pretty happy with Fugro's performance. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. Unsurprisingly, this led to impressive revenue growth. That said, the company's revenue growth is expected to slow, as predicted by current analyst forecasts. 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.
