Yahoo Finance Taliworks Corporation Berhad's (KLSE:TALIWRK) Dismal Stock Performance Reflects Weak Fundamentals
It is hard to get excited after looking at Taliworks Corporation Berhad's (KLSE:TALIWRK) recent performance, when its stock has declined 5.0% over the past three months. We decided to study the company's financials to determine if the downtrend will continue as the long-term performance of a company usually dictates market outcomes. Specifically, we decided to study Taliworks Corporation Berhad's ROE in this article.
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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Taliworks Corporation Berhad
How Do You Calculate Return On Equity?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Taliworks Corporation Berhad is:
4.9% = RM51m ÷ RM1.1b (Based on the trailing twelve months to September 2022).
The 'return' is the income the business earned over the last year. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.05 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.
Taliworks Corporation Berhad's Earnings Growth And 4.9% ROE
It is quite clear that Taliworks Corporation Berhad's ROE is rather low. Not just that, even compared to the industry average of 9.1%, the company's ROE is entirely unremarkable. Therefore, it might not be wrong to say that the five year net income decline of 2.0% seen by Taliworks Corporation Berhad was possibly a result of it having a lower ROE. We reckon that there could also be other factors at play here. For example, the business has allocated capital poorly, or that the company has a very high payout ratio.
Next, on comparing with the industry net income growth, we found that Taliworks Corporation Berhad's earnings seems to be shrinking at a similar rate as the industry which shrunk at a rate of a rate of 2.0% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Taliworks Corporation Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Taliworks Corporation Berhad Using Its Retained Earnings Effectively?
Taliworks Corporation Berhad's very high three-year median payout ratio of 173% over the last three years suggests that the company is paying its shareholders more than what it is earning and this explains the company's shrinking earnings. Paying a dividend higher than reported profits is not a sustainable move. Our risks dashboard should have the 2 risks we have identified for Taliworks Corporation Berhad.
Moreover, Taliworks Corporation Berhad has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 159%. Regardless, the future ROE for Taliworks Corporation Berhad is predicted to rise to 9.2% despite there being not much change expected in its payout ratio.
Summary
On the whole, Taliworks Corporation Berhad's performance is quite a big let-down. Specifically, it has shown quite an unsatisfactory performance as far as earnings growth is concerned, and a poor ROE and an equally poor rate of reinvestment seem to be the reason behind this inadequate performance. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. 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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