The MBM Resources Berhad (KLSE:MBMR) share price has increased by a significant 14% over the past three months. Since the market usually pays for a company's long-term fundamentals, we decided to investigate whether a company's key performance indicators are influencing the market. Specifically, we decided to study MBM Resources Berhad's ROE 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, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for MBM Resources Berhad.
How do I calculate return on equity?
Return on equity can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, MBM Resources Berhad's ROE is:
14% = RM326m ÷ RM2.4b (Based on trailing 12 months to September 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. This means that for every RM1 of a shareholder's investment, the company will generate a profit of RM0.14 for him.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company's profitability. We are then able to assess a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” 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.
MBM Resources Berhad's earnings growth and ROE 14%
Firstly, MBM Resources Berhad seems to have a respectable ROE. Moreover, his ROE for the company is very good compared to the industry average of 10%. This probably laid the foundation for MBM Resources Berhad's modest net profit growth of 14% over the past five years.
We then compared MBM Resources Berhad'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 14% over the past few years.
Earnings growth is an important metric to consider when evaluating a stock. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. That way, you'll know if the stock is headed for clear blue waters or if a swamp awaits. Is MBMR well-valued? This infographic on company intrinsic value includes everything you need to know.
Is MBM Resources Berhad effectively utilizing its retained earnings?
MBM Resources Berhad, as we saw above, has a healthy combination of a decent three-year median payout ratio of 30% (or a retention rate of 70%) and decent earnings growth. This means that the company is utilizing it efficiently. Of that profit.
Additionally, MBM Resources Berhad 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 53% over the next three years. Therefore, the expected increase in the dividend payout ratio explains that the company's ROE is expected to fall to his 10% over the same period.
conclusion
Overall, we are very satisfied with MBM Resources Berhad's performance. In particular, it's great to see that the company has invested heavily in its business, delivering strong revenue growth along with high rates of return. Having said that, we researched the latest analyst forecasts and found that while the company's past earnings have grown, analysts expect future earnings to contract. 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.
