Most readers would already know that the IRIS Corporation Berhad (KLSE:IRIS) share price has increased by a significant 14% over the past three months. Since a company's long-term fundamentals typically drive market outcomes, we wonder what role, if any, a company's financials play in price movements. I am thinking. In particular, I would like to pay attention to Iris Corporation Berhad's ROE today.
Return on equity or ROE tests how effectively a company is growing its value and managing investors' money. 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 IRIS Corporation Berhad.
How is ROE calculated?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, IRIS Corporation Berhad's ROE is:
9.1% = RM34m ÷ RM373m (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 a shareholder's investment, the company will generate a profit of RM0.09 for him.
Why is ROE important for profit growth?
So far, we have learned that ROE measures how efficiently a company is generating its profits. We are then able to evaluate 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.
IRIS Corporation Berhad's earnings growth and ROE 9.1%
At first glance, IRIS Corporation Berhad's ROE doesn't seem to be all that interesting. However, ROE is on par with the industry average of 9.2%, so we can't rule it out completely. Still, IRIS Corporation Berhad is showing fairly healthy net profit growth of 15%. Considering the moderately low ROE, it's quite possible that other aspects are positively impacting the company's earnings growth. Maintaining high profits and efficient management, etc.
The next step was to compare IRIS Corporation Berhad's net income growth with its industry. We're pleased to note that the company's growth rate is higher than the industry average of 12%.
Earnings growth is a big factor in stock valuation. In any case, investors should seek to ascertain whether expected earnings growth or decline has been factored in. Doing so will help you determine whether a stock's future is promising or ominous. Is IRIS Corporation Berhad fairly valued compared to other companies? These 3 metrics may help you decide.
Is Iris Corporation Berhad effectively utilizing its profits?
IRIS Corporation Berhad currently does not pay dividends. This essentially means that you are reinvesting all of your profits back into the business. This definitely contributes to the decent revenue growth rate discussed above.
conclusion
Overall, there appear to be some positive aspects to IRIS Corporation Berhad's business. Despite the low ROE, the company was able to achieve strong earnings growth due to its high reinvestment rate. We don't want to completely fire the company, but we do try to see how risky the business is in order to make more informed decisions about the company. The risks dashboard displays his 1 risk identified for IRIS Corporation 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.
