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Best World International (SGX:CGN) has been doing well on the stock market, with its share price increasing by a significant 16% 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. Specifically, we decided to examine Best World International’s ROE in this article.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it receives from its shareholders. In other words, it is a profitability ratio that measures the rate of return on the capital provided by a company’s shareholders.
Check out our latest analysis for Best World International.
How do you calculate return on equity?
of Calculation formula for return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, Best World International’s ROE is:
20% = S$120 million ÷ S$590 million (based on trailing twelve months to December 2023).
“Return” is the profit over the past 12 months. This means that for every S$1 of a shareholder’s investment, the company will generate a profit of S$0.20 for him.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company’s profitability. 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. All else being equal, companies with higher return on equity and profit retention typically have higher growth rates compared to companies that don’t have the same characteristics.
A side-by-side comparison of Best World International’s profit growth rate and ROE of 20%
First, Best World International’s ROE looks acceptable. Moreover, his ROE for the company is very good compared to the industry average of 11%. This probably laid the foundation for the modest 11% growth in Best World International’s net income over the past five years.
As a next step, we compared Best World International’s net income growth with its industry. We’re happy to see that the company’s growth is higher than the industry average of 8.7%.
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). Doing so will help you determine whether a stock’s future is promising or ominous. Is Best World International valued significantly compared to other companies? These 3 rating scales can help you decide.
Does Best World International reinvest its profits effectively?
Best World International does not pay dividends. This means that all profits are reinvested into the business, which explains the company’s considerable revenue growth.
conclusion
Overall, I’m pretty happy with Best World International’s performance. Specifically, we like that the company reinvests a huge amount of its profits at a high rate of return. Of course, this significantly increased the company’s revenue.
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 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.
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