Yahoo Finance Is DKSH Holdings (Malaysia) Berhad's (KLSE:DKSH) Stock's Recent Performance A Reflection Of Its Financial Health?
DKSH Holdings (Malaysia) Berhad's (KLSE:DKSH) stock up by 4.1% over the past month. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on DKSH Holdings (Malaysia) Berhad's ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for DKSH Holdings (Malaysia) Berhad
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for DKSH Holdings (Malaysia) Berhad is:
13% = RM109m ÷ RM806m (Based on the trailing twelve months to September 2022).
The 'return' is the yearly profit. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.13 in profit.
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
DKSH Holdings (Malaysia) Berhad's Earnings Growth And 13% ROE
To start with, DKSH Holdings (Malaysia) Berhad's ROE looks acceptable. On comparing with the average industry ROE of 8.7% the company's ROE looks pretty remarkable. This probably laid the ground for DKSH Holdings (Malaysia) Berhad's moderate 20% net income growth seen over the past five years.
As a next step, we compared DKSH Holdings (Malaysia) Berhad's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 14%.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. 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 prospects. So, you may want to check if DKSH Holdings (Malaysia) Berhad is trading on a high P/E or a low P/E, relative to its industry.
Is DKSH Holdings (Malaysia) Berhad Using Its Retained Earnings Effectively?
DKSH Holdings (Malaysia) Berhad's three-year median payout ratio to shareholders is 20% (implying that it retains 80% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.
Besides, DKSH Holdings (Malaysia) Berhad has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 19% of its profits over the next three years. However, DKSH Holdings (Malaysia) Berhad's future ROE is expected to decline to 9.5% despite there being not much change anticipated in the company's payout ratio.
Summary
On the whole, we feel that DKSH Holdings (Malaysia) Berhad's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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