29% = AU$16m ÷ AU$56m (Based on the trailing twelve months to December 2020). So, based on the above formula, the ROE for PWR Holdings is: The ‘return’ refers to a company’s earnings over the last year. One way to conceptualize this is that for each A$1 of shareholders’ capital it has, the company made A$0.29 in profit.
Return on equity can be calculated by using the formula: How Do You Calculate Return On Equity?
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity See our latest analysis for PWR Holdings
Firstly, we acknowledge that PWR Holdings has a significantly high ROE. Additionally, the company’s ROE is higher compared to the industry average of 20% which is quite remarkable. This likely paved the way for the modest 15% net income growth seen by PWR Holdings over the past five years. growth Story continues PWR Holdings’ Earnings Growth And 29% ROE
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics. What Has ROE Got To Do With Earnings Growth?
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