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It is hard to get excited after looking at BioSyent's (CVE:RX) recent performance, when its stock has declined 6.7% over the past month. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on BioSyent's ROE.
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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
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How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for BioSyent is:
21% = CA$7.3m ÷ CA$35m (Based on the trailing twelve months to December 2024).
The 'return' is the profit over the last twelve months. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.21.
Check out our latest analysis for BioSyent
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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.
BioSyent's Earnings Growth And 21% ROE
At first glance, BioSyent seems to have a decent ROE. Especially when compared to the industry average of 5.0% the company's ROE looks pretty impressive. This certainly adds some context to BioSyent's decent 11% net income growth seen over the past five years.
We then compared BioSyent's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 40% in the same 5-year period, which is a bit concerning.
Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is BioSyent fairly valued compared to other companies? These 3 valuation measures might help you decide.