Simply Wall St
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Most readers would already know that AB Dynamics’ (LON:ABDP) stock increased by 4.1% over the past week. Given that stock prices are usually aligned with a company’s financial performance in the long-term, we decided to investigate if the company’s decent financials had a hand to play in the recent price move. Specifically, we decided to study AB Dynamics’ ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
Return on equity 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 AB Dynamics is:
7.8% = UK£11m ÷ UK£136m (Based on the trailing twelve months to February 2025).
The ‘return’ is the profit over the last twelve months. Another way to think of that is that for every £1 worth of equity, the company was able to earn £0.08 in profit.
Check out our latest analysis for AB Dynamics
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
On the face of it, AB Dynamics’ ROE is not much to talk about. However, given that the company’s ROE is similar to the average industry ROE of 8.1%, we may spare it some thought. Particularly, the exceptional 29% net income growth seen by AB Dynamics over the past five years is pretty remarkable. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing AB Dynamics’ net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 28% over the last few years.
