Yahoo Finance Is Ashley Services Group Limited's (ASX:ASH) Latest Stock Performance A Reflection Of Its Financial Health?
Ashley Services Group (ASX:ASH) has had a great run on the share market with its stock up by a significant 33% over the last month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Ashley Services Group's ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Ashley Services Group
How Is ROE Calculated?
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Ashley Services Group is:
20% = AU$6.3m ÷ AU$31m (Based on the trailing twelve months to December 2023).
The 'return' is the income the business earned over the last year. So, this means that for every A$1 of its shareholder's investments, the company generates a profit of A$0.20.
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Ashley Services Group's Earnings Growth And 20% ROE
To begin with, Ashley Services Group seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 19%. This probably goes some way in explaining Ashley Services Group's moderate 16% growth over the past five years amongst other factors.
Next, on comparing with the industry net income growth, we found that Ashley Services Group's growth is quite high when compared to the industry average growth of 4.3% in the same period, which is great to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Ashley Services Group fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Ashley Services Group Making Efficient Use Of Its Profits?
The high three-year median payout ratio of 77% (or a retention ratio of 23%) for Ashley Services Group suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Additionally, Ashley Services Group has paid dividends over a period of nine years which means that the company is pretty serious about sharing its profits with shareholders.
Conclusion
In total, we are pretty happy with Ashley Services Group's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Ashley Services Group and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
