With its share price down 6.7% over the past three months, it's easy to ignore Greatech Technology Berhad (KLSE:GREATEC). But if you pay close attention, given how the market typically rewards companies with strong financial health, the company's strong financials could mean that its stock price will rise over the long term. You may be wondering if that means something. In this article, we decided to focus on Greatech Technology Berhad's ROE.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it receives from its shareholders. Simply put, it is used to evaluate a company's profitability compared to its equity.
Check out our latest analysis for Greatech Technology Berhad.
How is ROE calculated?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Greatech Technology Berhad's ROE is:
21% = RM154m ÷ RM751m (Based on trailing 12 months to December 2023).
“Return” is the annual profit. One way he conceptualizes this is that for every RM1 of shareholders' equity, the company made a profit of MYR0.21.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company's earnings growth potential. Generally, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
Greatech Technology Berhad's earnings growth and ROE 21%
Firstly, Greatech Technology Berhad seems to have a respectable ROE. Moreover, his ROE for the company is very good compared to the industry average of his 7.0%. Perhaps as a result of this, Greatech Technology Berhad has been able to grow its net income by an impressive 22% over the past five years. We believe that other factors may also be at play here. For example: – Maintaining high profits and efficient management.
As a next step, we compared Greatech Technology Berhad's net income growth with its industry. And we're happy to see that the company's growth is faster than the industry's average growth rate of 15%.
Earnings growth is a big factor in stock valuation. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). That way, you'll know if the stock is headed for clear blue waters or if a swamp awaits. Is GREATEC appropriately evaluated? This infographic about a company's intrinsic value has everything you need to know.
Does Greatech Technology Berhad reinvest its profits efficiently?
Given that Greatech Technology Berhad does not pay regular dividends to shareholders, we can assume that the company reinvests all of its profits into growing its business.
conclusion
Overall, we feel that Greatech Technology Berhad's performance is very good. In particular, it's great to see that the company has invested heavily in its business, delivering strong revenue growth along with high rates of return. According to the latest industry analyst forecasts, the company is expected to maintain its current growth rate. If you want to know the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
