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With its stock down 5.1% over the past month, it is easy to disregard Connexion Mobility (ASX:CXZ). 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 Connexion Mobility'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 To Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Connexion Mobility is:
36% = US$2.2m ÷ US$6.1m (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 A$1 of shareholders' capital it has, the company made A$0.36 in profit.
View our latest analysis for Connexion Mobility
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
A Side By Side comparison of Connexion Mobility's Earnings Growth And 36% ROE
To begin with, Connexion Mobility has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 12% which is quite remarkable. Probably as a result of this, Connexion Mobility was able to see a decent net income growth of 12% over the last five years.
Next, on comparing Connexion Mobility's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 13% over the last few years.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for CXZ? You can find out in our latest intrinsic value infographic research report