With its stock down 19% over the past three months, it is easy to disregard Total Telcom (CVE:TTZ). We, however decided to study the company’s financials to determine if they have got anything to do with the price decline. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company’s financial performance. Specifically, we decided to study Total Telcom’s 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.
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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 Total Telcom is:
6.1% = CA$307k ÷ CA$5.0m (Based on the trailing twelve months to December 2024).
The ‘return’ is the yearly profit. One way to conceptualize this is that for each CA$1 of shareholders’ capital it has, the company made CA$0.06 in profit.
View our latest analysis for Total Telcom
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.
On the face of it, Total Telcom’s ROE is not much to talk about. A quick further study shows that the company’s ROE doesn’t compare favorably to the industry average of 11% either. Accordingly, Total Telcom’s low net income growth of 2.3% over the past five years can possibly be explained by the low ROE amongst other factors.
As a next step, we compared Total Telcom’s net income growth with the industry and were disappointed to see that the company’s growth is lower than the industry average growth of 14% in the same period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Total Telcom fairly valued compared to other companies? These 3 valuation measures might help you decide.
