The Masterpac Group Berhad (KLSE:MASTER) share price has increased by a significant 10% over the past three months. Since the market typically pays for a company's long-term fundamentals, we decided to investigate whether a company's key performance indicators are influencing the market. In particular, today I would like to pay attention to Masterpac Group Berhad's ROE.
Return on equity or ROE tests how effectively a company is growing its value and managing investors' money. More simply, it measures a company's profitability in relation to shareholder equity.
Check out our latest analysis for Master-Pack Group Berhad.
How do you calculate return on equity?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Master-Pack Group Berhad's ROE is:
15% = RM25m ÷ RM170m (Based on trailing 12 months to December 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. This means that for every RM1 of shareholders' equity, the company generated his profit of RM0.15.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE is a measure of a company's profitability. 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. 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 Master-Pack Group Berhad's earnings growth and ROE of 15%.
Firstly, Master-Pack Group Berhad seems to have a respectable ROE. Moreover, his ROE for the company is very good compared to the industry average of 7.0%. This certainly gives some context to Master-Pack Group Berhad's exceptional 20% growth in net profit over the past five years. However, there may be other causes behind this growth. For example, a company with a low dividend payout ratio or a company with efficient management.
As a next step, we compared Master-Pack Group Berhad's net income growth with its industry. And we're happy to see that the company's growth is faster than the average industry growth rate of 11%.
The foundations that give a company value have a lot to do with its revenue growth. Investors should check whether expected earnings growth or decline has been factored in in any case. By doing so, you can find out if the stock is headed for clear blue waters or if a swamp awaits. One good indicator of expected earnings growth is the P/E ratio, which determines the price the market is willing to pay for a stock based on its earnings outlook. So you may want to see whether Master-Pack Group Berhad is trading on a higher or lower P/E ratio, relative to its industry.
Is Master-Pack Group Berhad effectively utilizing its retained earnings?
Master-Pack Group Berhad's median three-year dividend payout ratio is a lower 21%, meaning it retains a higher percentage of its profits (79%). So it seems Master-Pack Group Berhad is reinvesting a lot of its profits to grow its business, and it's showing in its revenue growth.
Moreover, Master-Pack Group Berhad has been paying dividends for at least 10 years. This means that the company is quite serious about sharing profits with shareholders.
summary
Overall, we are very satisfied with Master-Pack Group 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. If the company continues to grow its revenue as it has, it could have a positive impact on the stock price, given how earnings per share affect the stock price over the long term. Remember, the stock price outcome also depends on the underlying risks that the company may face. Therefore, it is important for investors to be aware of the risks involved in the business. Our risks dashboard shows the two risks he has identified for Master-Pack Group Berhad.
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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.
