The Posiflex Technology (TWSE:8114) share price has risen by 60% in the last three months, and as the market rewards strong financials in the long term, we wonder if that will be the case here as well. In this article we decided to focus on Posiflex Technology's ROE.
Return on Equity (ROE) is a measure of how effectively a company is growing its value and managing investors' money. Simply put, ROE tells us how much profit each dollar of shareholder investment produces.
View our latest analysis for Posiflex Technology
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, Posiflex Technology's ROE is:
11% = NT$750m ÷ NT$6.7b (Based on the trailing twelve months to March 2024).
“Return” refers to the annual profit, and one way to conceptualize this is that for every NT$1 of shareholders' capital, the company made NT$0.11 in profit.
What is the relationship between ROE and earnings growth?
It's already clear that ROE serves as an efficient profit-generating indicator to predict a company's future earnings. Depending on how much a company reinvests or “retains” these profits, and how effectively it does it, we are then able to assess a company's earnings growth potential. Assuming all else remains constant, the higher the ROE and retained earnings, the higher a company's growth rate will be relative to companies that don't necessarily possess these characteristics.
Posiflex Technology's Revenue Growth and 11% ROE
Firstly, Posiflex Technology appears to have a respectable ROE. Compared to the industry average ROE of 8.5%, the company's ROE is quite impressive. This is certainly supported by the fact that Posiflex Technology has delivered solid net income growth of 10% over the past five years.
As a next step, we compared Posiflex Technology's net income growth with the industry and found that the company's growth rate is similar compared to the average industry growth rate of 12% during the same period.
TWSE:8114 Historical Revenue Growth August 13, 2024
Earnings growth is a big driver of stock valuation. It's important for investors to know if the market is pricing in a company's expected earnings growth (or decline). This helps them determine if the stock is poised for a bright or bleak future. Is the market pricing in 8114's future prospects? Find out in our latest intrinsic value infographic research report.
Is Posiflex Technology reinvesting its profits efficiently?
Posiflex Technology's three-year dividend payout ratio averages an impressive 72%, meaning that it is only able to reinvest 28% in the business, indicating that the company has been able to achieve decent earnings growth despite returning the majority of its profits to shareholders.
Additionally, Posiflex Technology has been paying dividends for at least ten years, indicating that the company is committed to sharing profits with shareholders.
Conclusion
Overall, we're very pleased with Posiflex Technology's performance. In particular, its high ROE is very noteworthy and likely the reason for its strong revenue growth. However, the company retains a small portion of its profits, which means the company was able to grow its revenue despite that, so that's not too bad. That said, the company's revenue is expected to accelerate according to the latest industry analyst forecasts. To know more about the latest analyst forecasts for the company, check out our visualization of analyst forecasts for the company.
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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 stocks, 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.
