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Most readers would already be aware that Briscoe Group’s (NZSE:BGP) stock increased significantly by 13% over the past three months. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Briscoe Group’s ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for Briscoe Group
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Briscoe Group is:
25% = NZ$75m ÷ NZ$300m (Based on the trailing twelve months to July 2024).
The ‘return’ is the amount earned after tax over the last twelve months. So, this means that for every NZ$1 of its shareholder’s investments, the company generates a profit of NZ$0.25.
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.
To begin with, Briscoe Group has a pretty high ROE which is interesting. Further, even comparing with the industry average if 25%, the company’s ROE is quite respectable. Therefore, it looks like the high ROE is what probably supported Briscoe Group’s modest 6.0% growth over the past five years.
We then compared Briscoe Group’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 3.1% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for BGP? You can find out in our latest intrinsic value infographic research report.