It is hard to get excited after looking at Acadia Healthcare Company’s (NASDAQ:ACHC) recent performance, when its stock has declined 41% over the past three months. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Acadia Healthcare Company’s ROE.
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.
See our latest analysis for Acadia Healthcare Company
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Acadia Healthcare Company is:
9.2% = US$291m ÷ US$3.1b (Based on the trailing twelve months to September 2024).
The ‘return’ is the income the business earned over the last year. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.09.
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.
On the face of it, Acadia Healthcare Company’s ROE is not much to talk about. Next, when compared to the average industry ROE of 13%, the company’s ROE leaves us feeling even less enthusiastic. However, the moderate 18% net income growth seen by Acadia Healthcare Company over the past five years is definitely a positive. So, there might be other aspects that are positively influencing the company’s earnings growth. Such as – high earnings retention or an efficient management in place.
We then compared Acadia Healthcare Company’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 5.2% in the same 5-year period.
