Canaf Investments (CVE:CAF) has had a rough three months with its share price down 22%. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Canaf Investments’ ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
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 Canaf Investments is:
19% = CA$2.8m ÷ CA$15m (Based on the trailing twelve months to July 2025).
The ‘return’ refers to a company’s earnings over the last year. One way to conceptualize this is that for each CA$1 of shareholders’ capital it has, the company made CA$0.19 in profit.
See our latest analysis for Canaf Investments
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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.
At first glance, Canaf Investments seems to have a decent ROE. On comparing with the average industry ROE of 13% the company’s ROE looks pretty remarkable. This certainly adds some context to Canaf Investments’ exceptional 27% net income growth seen over the past five years. However, there could also be other causes behind this growth. Such as – high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Canaf Investments’ growth is quite high when compared to the industry average growth of 16% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Canaf Investments is trading on a high P/E or a low P/E, relative to its industry.
