Most readers will already know that Anglo Asian Mining (LON:AAZ) stock has risen a significant 8.3% over the past month. As most know, fundamentals are what generally guide market price movements over the long term, so we decided to take a look at key financial indicators in business today to see if they have a role to play. play in the recent price movement. In this article, we have decided to focus on the ROE of Anglo Asian Mining.
Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In simpler terms, it measures a company’s profitability relative to equity.
See our latest analysis for Anglo Asian Mining
How to calculate return on equity?
The return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the formula above, the ROE for Anglo Asian Mining is:
6.2% = $7.4m ÷ $118m (based on trailing 12 months to December 2021).
“Yield” is the income the business has earned over the past year. One way to conceptualize this is that for every pound of share capital it has, the company has made a profit of 0.06 pounds.
What does ROE have to do with earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
Anglo Asian Mining Earnings Growth and ROE of 6.2%
At first glance, Anglo Asian Mining’s ROE does not look so appealing. Then, compared to the industry average ROE of 20%, the company’s ROE leaves us even less excited. Despite this, Anglo Asian Mining has been able to grow its net income significantly, at a rate of 27% over the past five years. Therefore, there could be other reasons behind this growth. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio.
In a next step, we benchmarked Anglo Asian Mining’s net income growth against the industry, and luckily we found that the growth the company saw was above the industry average growth of 18%. .
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. By doing so, he will get an idea if the title is heading for clear blue waters or if swampy waters await. If you’re wondering about the valuation of Anglo Asian Mining, check out this indicator of its price/earnings ratio, relative to its sector.
Is Anglo Asian Mining making effective use of its profits?
Anglo Asian Mining’s three-year median payout ratio is a rather moderate 48%, meaning the company retains 52% of its revenue. So it looks like Anglo Asian Mining is effectively reinvesting to see impressive earnings growth (discussed above) and paying out a well-covered dividend.
Additionally, Anglo Asian Mining has paid dividends over a four-year period, which means the company is pretty serious about sharing its profits with shareholders.
Overall, we believe Anglo Asian Mining has positive attributes. Despite its low rate of return, the fact that the company reinvests a very large portion of its profits back into its business no doubt contributed to the strong growth in its profits. While we wouldn’t completely dismiss the business, what we would do is try to figure out how risky the business is to make a more informed decision about the business. Our risk dashboard would have the 2 risks we identified for Anglo Asian Mining.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.