QL Resources Berhad (KLSE:QL) has had a rough month with its share price down 4.5%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to QL Resources Berhad's ROE today.
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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
How Do You Calculate Return On Equity?
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 QL Resources Berhad is:
14% = RM499m ÷ RM3.6b (Based on the trailing twelve months to December 2024).
The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.14 in profit.
Check out our latest analysis for QL Resources Berhad
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.
QL Resources Berhad's Earnings Growth And 14% ROE
At first glance, QL Resources Berhad seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 9.1%. This probably laid the ground for QL Resources Berhad's moderate 15% net income growth seen over the past five years.
Next, on comparing QL Resources Berhad's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 15% over the last few years.
Earnings growth is a huge factor in stock valuation. 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. Is QL Resources Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.