SCC Holdings Berhad (KLSE:SCC) stock is up 15% over the past week. But the company’s key financial indicators seem to differ across the board, leading us to wonder whether the company’s current share price momentum can be sustained or not. In this article, we have decided to focus on the ROE of SCC Holdings Berhad.
Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest analysis for SCC Holdings Berhad
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 above formula, the ROE for SCC Holdings Berhad is:
3.9% = RM1.7m ÷ RM44m (Based on trailing twelve months to September 2021).
The “yield” is the profit of the last twelve months. Another way to think about this is that for every 1 MYR worth of equity, the company was able to make a profit of 0.04 MYR.
Why is ROE important for earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. 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.
A side-by-side comparison of SCC Holdings Berhad’s earnings growth and ROE of 3.9%
It is clear that the ROE of SCC Holdings Berhad is rather low. Not only that, even compared to the industry average of 6.1%, the company’s ROE is quite unremarkable. For this reason, SCC Holdings Berhad’s 22% decline in net income over five years is not surprising given its lower ROE. However, there could also be other factors leading to lower income. For example, the company has a very high payout rate or faces competitive pressures.
However, when we compared the growth of SCC Holdings Berhad with the industry, we found that although the company’s earnings declined, the industry saw earnings growth of 1.6% over the past year. the same period. It’s quite worrying.
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Is SCC Holdings Berhad correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Is SCC Holdings Berhad effectively reinvesting its profits?
Although the company has paid a portion of its dividend in the past, it currently does not pay any dividend. This implies that potentially all of its profits are reinvested in the business.
All in all, we are a bit ambivalent about the performance of SCC Holdings Berhad. Although the company has a high reinvestment rate, the low ROE means that all this reinvestment does not benefit its investors and, moreover, it has a negative impact on earnings growth. So far, we have only made a short study of the company’s growth data. So it might be worth checking that out. free detailed graph SCC Holdings Berhad’s past revenue, as well as revenue and cash flow to get a deeper insight into the company’s performance.
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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.