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Is Boyd Group Income Fund’s (TSE:BYD.UN) 13.29% ROE Strong Compared To Its Industry?

Boyd Group Income Fund (TSX:BYD.UN) outperformed the Diversified Support Services industry on the basis of its ROE – producing a higher 13.29% relative to the peer average of 10.11% over the past 12 months. While the impressive ratio tells us that BYD.UN has made significant profits from little equity capital, ROE doesn’t tell us if BYD.UN has borrowed debt to make this happen. In this article, we’ll closely examine some factors like financial leverage to evaluate the sustainability of BYD.UN’s ROE. View our latest analysis for Boyd Group Income Fund

What you must know about ROE

Return on Equity (ROE) weighs Boyd Group Income Fund’s profit against the level of its shareholders’ equity. For example, if the company invests CA$1 in the form of equity, it will generate CA$0.13 in earnings from this. In most cases, a higher ROE is preferred; however, there are many other factors we must consider prior to making any investment decisions.

Return on Equity = Net Profit ÷ Shareholders Equity

ROE is measured against cost of equity in order to determine the efficiency of Boyd Group Income Fund’s equity capital deployed. Its cost of equity is 8.43%. Since Boyd Group Income Fund’s return covers its cost in excess of 4.86%, its use of equity capital is efficient and likely to be sustainable. Simply put, Boyd Group Income Fund pays less for its capital than what it generates in return. ROE can be dissected into three distinct ratios: net profit margin, asset turnover, and financial leverage. This is called the Dupont Formula:

Dupont Formula

ROE = profit margin × asset turnover × financial leverage

ROE = (annual net profit ÷ sales) × (sales ÷ assets) × (assets ÷ shareholders’ equity)

ROE = annual net profit ÷ shareholders’ equity

TSX:BYD.UN Last Perf Apr 30th 18
TSX:BYD.UN Last Perf Apr 30th 18

Essentially, profit margin shows how much money the company makes after paying for all its expenses. The other component, asset turnover, illustrates how much revenue Boyd Group Income Fund can make from its asset base. And finally, financial leverage is simply how much of assets are funded by equity, which exhibits how sustainable the company’s capital structure is. Since ROE can be artificially increased through excessive borrowing, we should check Boyd Group Income Fund’s historic debt-to-equity ratio. Currently the debt-to-equity ratio stands at a reasonable 60.68%, which means its above-average ROE is driven by its ability to grow its profit without a significant debt burden.

TSX:BYD.UN Historical Debt Apr 30th 18
TSX:BYD.UN Historical Debt Apr 30th 18

Next Steps:

ROE is a simple yet informative ratio, illustrating the various components that each measure the quality of the overall stock. Boyd Group Income Fund’s above-industry ROE is encouraging, and is also in excess of its cost of equity. Its high ROE is not likely to be driven by high debt. Therefore, investors may have more confidence in the sustainability of this level of returns going forward. Although ROE can be a useful metric, it is only a small part of diligent research.

For Boyd Group Income Fund, there are three pertinent factors you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Valuation: What is Boyd Group Income Fund worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Boyd Group Income Fund is currently mispriced by the market.

  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Boyd Group Income Fund? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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