It is hard to get excited after looking at Mobilia Holdings Berhad's (KLSE:MOBILIA) recent performance, when its stock has declined 15% over the past three months. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Mobilia Holdings Berhad's ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for Mobilia Holdings Berhad
How To 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 Mobilia Holdings Berhad is:
19% = RM12m ÷ RM62m (Based on the trailing twelve months to December 2022).
The 'return' is the profit over the last twelve months. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.19.
What Is The Relationship Between ROE And 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
A Side By Side comparison of Mobilia Holdings Berhad's Earnings Growth And 19% ROE
At first glance, Mobilia Holdings Berhad seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 11%. This probably laid the ground for Mobilia Holdings Berhad's moderate 13% net income growth seen over the past five years.
We then performed a comparison between Mobilia Holdings Berhad's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 14% in the same period.
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). Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Mobilia Holdings Berhad is trading on a high P/E or a low P/E, relative to its industry.