Innoprise Plantations Berhad’s (KLSE:INNO) stock is up by 4.3% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company’s key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Innoprise Plantations Berhad’s ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
See our latest analysis for Innoprise Plantations Berhad
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 Innoprise Plantations Berhad is:
20% = RM62m ÷ RM312m (Based on the trailing twelve months to June 2024).
The ‘return’ is the amount earned after tax over the last twelve months. That means that for every MYR1 worth of shareholders’ equity, the company generated MYR0.20 in profit.
Why Is ROE Important For Earnings Growth?
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.
Innoprise Plantations Berhad’s Earnings Growth And 20% ROE
To begin with, Innoprise Plantations Berhad seems to have a respectable ROE. On comparing with the average industry ROE of 10.0% the company’s ROE looks pretty remarkable. This certainly adds some context to Innoprise Plantations Berhad’s exceptional 22% 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.
As a next step, we compared Innoprise Plantations Berhad’s net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 23% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock’s future looks promising or ominous. If you’re wondering about Innoprise Plantations Berhad’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Innoprise Plantations Berhad Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 100% (implying that it keeps only 0.004% of profits) for Innoprise Plantations Berhad suggests that the company’s growth wasn’t really hampered despite it returning most of the earnings to its shareholders.
Besides, Innoprise Plantations Berhad has been paying dividends over a period of eight years. This shows that the company is committed to sharing profits with its shareholders.
Conclusion
On the whole, we do feel that Innoprise Plantations Berhad has some positive attributes. Namely, its high earnings growth, which was likely due to its high ROE. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining hardly any of its profits. So far, we’ve only made a quick discussion around the company’s earnings growth. So it may be worth checking this free detailed graph of Innoprise Plantations Berhad’s past earnings, as well as revenue and cash flows to get a deeper insight into the company’s performance.
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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.
