With its stock down 8.3% over the past month, it is easy to disregard Property Franchise Group (LON:TPFG). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Property Franchise Group’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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
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 Property Franchise Group is:
11% = UK£16m ÷ UK£148m (Based on the trailing twelve months to June 2025).
The ‘return’ is the amount earned after tax over the last twelve months. That means that for every £1 worth of shareholders’ equity, the company generated £0.11 in profit.
Check out our latest analysis for Property Franchise Group
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.
When you first look at it, Property Franchise Group’s ROE doesn’t look that attractive. However, the fact that the its ROE is quite higher to the industry average of 6.7% doesn’t go unnoticed by us. Particularly, the substantial 29% net income growth seen by Property Franchise Group over the past five years is impressive . Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. E.g the company has a low payout ratio or could belong to a high growth industry.
Given that the industry shrunk its earnings at a rate of 2.6% over the last few years, the net income growth of the company is quite impressive.
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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is TPFG fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
