Many of our readers will already be aware that Metallus' (NYSE:MTUS) share price has risen significantly by 15% over the past month. Given the company's impressive performance, we decided to study the company's financial metrics in more detail, as a company's long term financial health often determines market outcomes. Specifically, we decided to look at Metallus' ROE in this article.
Return on Equity (ROE) is a measure of how effectively a company is growing its value and managing investors' money. In other words, it is a measure of how successful a company is at converting shareholder investments into profits.
Check out our latest analysis for Metallus
How to 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, Metallus's ROE is:
11% = US$79m ÷ US$739m (Based on the trailing twelve months to March 2024).
“Revenue” is the income a company has earned over the past year. Another way to think of this is that for every $1 worth of capital, the company was able to earn $0.11 in profit.
Why is ROE important for earnings growth?
Thus far, we have learned that ROE is a measure of a company's profitability. Based on how much of its profits a company chooses to reinvest or “retain”, we can evaluate a company's future profit-generating ability. Assuming all other things are equal, companies with both a higher return on equity and higher retained earnings typically have higher growth rates compared to companies that don't have the same characteristics.
Metalus's revenue growth and 11% ROE
At first glance, Metallus' ROE looks decent. Moreover, the company's ROE is roughly in line with the industry average of 9.8%. This certainly provides some context to Metallus' exceptional net income growth of 45% over the past five years. We believe there are other aspects that are also positively impacting the company's revenue growth, such as high profit retention and an efficient management structure.
As a next step, we compared Metallus's net income growth with the industry and, pleasingly, we found that the company's growth is above the industry average of 25%.
Earnings growth is a big driver of stock valuation. It is important for investors to know if the market is pricing in a company's expected earnings growth (or decline). Doing so will tell you if the stock is headed in a bright spot or a quagmire awaits. Is the market pricing in MTUS's future prospects? Find out in our latest Intrinsic Value Infographic research report.
Is Metallus making good use of its retained earnings?
Metallus doesn't pay regular dividends to shareholders, so we can assume that the company reinvests all of its profits into expanding its business.
summary
Overall, we feel that Metallus is performing very well. We especially like that the company is reinvesting a large portion of its profits at a high rate of return. This, of course, has helped the company's earnings grow strongly. That said, the latest industry analyst forecasts suggest that the company's earnings growth will slow. You can learn more about the company's future earnings growth forecast here. free For more information, see the company's analyst forecast report.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, 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 your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
