Most readers will already know that Bisalloy Steel Group (ASX:BIS) stock is up a significant 14% in the past month. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. In this article, we decided to focus on the ROE of Bisalloy Steel Group.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In simpler terms, it measures a company’s profitability relative to equity.
Check out our latest analysis for Bisalloy Steel Group
How to calculate return on equity?
the ROE formula East:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Bisalloy Steel Group is:
25% = AU$13 million ÷ AU$54 million (based on the last twelve months to December 2021).
The “yield” is the profit of the last twelve months. This means that for every Australian dollar of equity, the company generated a profit of 0.25 Australian dollars.
What is the relationship between ROE and earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
Bisalloy Steel Group profit growth and 25% ROE
First, we recognize that Bisalloy Steel Group has a significantly high ROE. Second, even when compared to the industry average of 14%, the company’s ROE is quite impressive. As a result, Bisalloy Steel Group’s outstanding 40% net profit growth over the past five years comes as no surprise.
As a next step, we benchmarked Bisalloy Steel Group’s net profit growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 25%.
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. This then helps them determine whether the action is placed for a bright or bleak future. A 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. So, you might want to check if Bisalloy Steel Group is trading on a high P/E or a low P/E, relative to its industry.
Is Bisalloy Steel Group Reinvesting Profits Effectively?
Bisalloy Steel Group’s three-year median payout ratio is a fairly moderate 44%, meaning the company retains 56% of its revenue. This suggests that its dividend is well covered, and given the strong growth we discussed above, it appears that Bisalloy Steel Group is reinvesting its earnings effectively.
Additionally, Bisalloy Steel Group has paid dividends over a nine-year period, which means the company is pretty serious about sharing its profits with its shareholders.
Overall, we are quite satisfied with Bisalloy Steel Group’s performance. In particular, we appreciate the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive earnings growth. If the company continues to increase its earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should be aware of the risks involved before investing in a company. Our risk dashboard would have the 2 risks we identified for Bisalloy Steel Group.
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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.