Moulinvest (EPA: ALMOU) had a good run on the stock market with a significant rise in its share of 31% over the last three months. 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. In particular, we will pay particular attention to Moulinvest’s ROE today.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Discover our latest analysis for Moulinvest
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, Moulinvest’s ROE is:
13% = 5.3 million euros Ã· 40 million euros (based on the last twelve months up to February 2021).
The “return” is the income the business has earned over the past year. This means that for every â¬ 1 of equity, the company generated â¬ 0.13 in profit.
What is the relationship between ROE and profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess the profits that the business is reinvesting or âwithholdingâ for future growth, which then gives us an idea of ââthe growth potential of the business. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
A side-by-side comparison of Moulinvest’s profit growth and 13% ROE
To begin with, Moulinvest’s ROE seems acceptable. Compared to the industry average ROE of 11%, the company’s ROE looks quite remarkable. This likely laid the groundwork for Moulinvest’s moderate net income growth of 14% seen over the past five years.
We then compared the growth of Moulinvest’s net income with the industry and we are happy to see that the growth figure of the company is higher compared to the industry which has a growth rate of 7.0%. over the same period.
Profit growth is a huge factor in the valuation of stocks. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. 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 Moulinvest is trading high P / E or low P / E, relative to its industry.
Does Moulinvest effectively reinvest its profits?
Moulinvest does not pay any dividends, which means that all of its profits are reinvested in the company, which explains the good growth in profits that the company has experienced.
All in all, we are rather satisfied with the performance of Moulinvest. Specifically, we like the fact that the company reinvests a large portion of its profits at a high rate of return. This of course allowed the company to experience substantial growth in profits. However, the latest analyst forecasts show that the company will continue to see its profits increase. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.
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 shares 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 the mentioned stocks.
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