Many of our readers will already be aware that Apaq Technology's (TWSE:6449) share price has risen significantly by 52% over the past three months. 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 Apaq Technology's ROE in this article.
ROE or return on equity is a tool that helps assess how effectively a company can generate profits on the investment it received from its shareholders. In other words, it is a profitability ratio that measures the return on capital provided by the company's shareholders.
View our latest analysis for Apaq Technology
How is ROE calculated?
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, Apaq Technology's ROE is:
12% = NT$427m ÷ NT$3.5b (Based on the trailing twelve months to June 2024).
“Return” refers to the company's profit after tax over the trailing twelve months. One way to conceptualize this is that for every NT$1 of shareholders' capital, the company made NT$0.12 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 a company reinvests or “retains”, we are able to evaluate a company's future profit-generating ability. Assuming all else is equal, companies with both a higher return on equity and retained profits typically have higher growth rates compared to companies that don't have the same characteristics.
Apac Technology's Revenue Growth vs. 12% ROE
Firstly, Apaq Technology appears to have a respectable ROE. The company's ROE is quite impressive, especially when compared to the industry average of 8.7%. This is likely the basis for Apaq Technology's impressive 21% growth in net income over the past five years. However, there could also be other reasons behind this growth, such as the company's low or efficiently managed dividend payout ratio.
We then compared Apaq Technology's net income growth with the industry and were pleased to see that the company's growth rate is higher compared to the industry, which posted a growth rate of 12% over the same five-year period.
TWSE:6449 Historical Revenue Growth August 22, 2024
Earnings growth is a big driver of stock valuation. What investors need to determine next is whether the expected earnings growth, or lack thereof, is already priced into the stock price. Doing so will tell them if the stock is on the bright side or a quagmire 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. Therefore, it is a good idea to check whether Apaq Technology is trading at a high or low P/E compared to the industry.
Is Apaq Technology reinvesting its profits efficiently?
Apac Technology's three-year median dividend payout ratio is high at 56% (meaning it only retains 44% of its profits), suggesting that the company's growth has not been significantly hampered despite returning most of its profits to shareholders.
Additionally, Apaq Technology has been paying dividends for at least ten years, which shows that the company is committed to sharing profits with shareholders.
summary
Overall, we're very pleased with Apaq Technology's performance, especially the high ROE, which has contributed to its impressive earnings growth. Despite the company only reinvesting a small portion of its profits, it's still been able to grow earnings, which is something to appreciate. Thus far, we've looked at the company's fundamentals and only just scratched the surface of the company's past performance. To learn more about Apaq Technology's past earnings growth, check out this visualization of past earnings, revenue and cash flow.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please 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 herein.