Per Aarsleff Holding (CPH: PAAL B) has had a strong run in the equity market with its stock rising significantly 11% over the past week. 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 results. Specifically, we decided to study the ROE of Per Aarsleff Holding in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
Check out our latest review for Per Aarsleff Holding
How to calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) Ã· Equity
Thus, based on the above formula, the ROE of Per Aarsleff Holding is:
12% = kr.447m kr.3.6b (based on the last twelve months up to June 2021).
The “return” is the income the business has earned over the past year. One way to conceptualize this is that for every DKK1 of shareholders’ capital it has, the company made a profit of DKK 0.12.
What does ROE have to do with profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.
Per Aarsleff Holding profit growth and 12% ROE
To begin with, the ROE of Per Aarsleff Holding seems acceptable. Even compared to the industry average of 12%, the company’s ROE looks pretty decent. This certainly adds context to Per Aarsleff Holding’s moderate 9.3% net profit growth seen over the past five years.
In the next step, we compared the net income growth of Per Aarsleff Holding with the industry, and luckily we found that the growth observed by the company is higher than the industry average growth of 4, 8%.
Profit growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading towards clear blue waters or if swampy waters are ahead of them. If you are wondering about Per Aarsleff Holding’s valuation, check out this gauge of its price / earnings ratio, relative to its industry.
Is Per Aarsleff Holding Efficiently Using Its Retained Earnings?
With a median payout ratio of 30% over three years (implying that the company keeps 70% of its profits), it looks like Per Aarsleff Holding is reinvesting effectively so that they see respectable profit growth and pay a dividend. which is well covered.
In addition, Per Aarsleff Holding is determined to continue to share its profits with its shareholders, which we can deduce from its long history of paying dividends for at least ten years. Our latest analyst data shows that the company’s future payout ratio over the next three years is expected to be around 35%. As a result, the ROE of Per Aarsleff Holding is not expected to change much either, which we have deduced from the analysts estimate of 15% for the future ROE.
Overall, we are quite satisfied with the performance of Per Aarsleff Holding. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in significant growth in its profits. That said, the latest forecast from industry analysts shows that the company’s earnings growth is expected to slow. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.