Looking at JHM Consolidation Berhad (KLSE:JHM)’s recent accomplishments, it’s unlikely to get you excited. The stock has fallen 26% over the past three months. However, the company’s fundamentals are fairly good, and its long-term financial position is generally consistent with future market price movements.Specifically, I decided to study JHM Consolidation Berhad’s ROE for this article.
Return on equity, or ROE, tests how effectively a company enhances its value and manages investors’ money. Simply put, it measures a company’s profitability relative to shareholders’ equity.
How to calculate return on equity
of ROE formula teeth:
Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity
Therefore, based on the above formula, JHM Consolidation Berhad’s ROE would be:
12% = RM32m ÷ RM270m (based on last 12 months to September 2022).
“Revenue” is the amount after tax for the last 12 months. Another way to think about this is that for each MYR1 worth of shares, the company was able to earn his MYR0.12 profit.
What is the relationship between ROE and profit growth?
It has already been established that ROE serves as an efficient profit-making metric to gauge a company’s future earnings. Next, the company should assess how much of its earnings will be reinvested or “retained” for future growth. This will give you an idea about the company’s growth potential. Assuming everything else is equal, higher ROE and profit margins will necessarily lead to higher growth for a company compared to a company that does not have these characteristics.
JHM Consolidation Berhad revenue growth and 12% ROE
First, JHM Consolidation Berhad’s ROE looks acceptable. We also found that the average industry ROE is similar at 14% when compared to the industry. Given this situation, one can’t help but wonder why JHM Consolidation Berhad has seen little to no growth over the last five years. We believe there may be other factors here that are limiting the company’s growth. For example, the company pays out the majority of its earnings in dividends or faces competitive pressure.
Second, when compared to the industry’s net profit growth, we find JHM Consolidation Berhad’s reported growth to be lower than the industry’s growth of 11% over the same period. This is not what we want to see.
The foundation for adding value to a company is largely tied to revenue growth. It is 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 your stock is headed for clear blue waters, or if wet waters await. One good indicator of expected earnings growth is the P/E ratio. This determines the price the market is willing to pay for a stock based on its earnings prospects.so you might want to Check if JHM Consolidation Berhad is trading at high or low PERcompared to its industry.
Is JHM Consolidation Berhad reinvesting profits efficiently?
The company has paid a portion of dividends in the past, but no longer pays dividends. We assume that the company has reinvested all its profits to grow its business.
Overall, I feel that JHM Consolidation Berhad certainly has some positives to consider. However, it is a pity that earnings have not grown despite high ROE and high reinvestment rate. We believe there are several external factors that can adversely affect our business. As such, the latest analyst forecasts show that the company’s earnings will continue to grow. Are these analyst expectations based on broader industry expectations or company fundamentals? Click here to go to our analyst’s predictions page for the company.
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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …
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