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Is the recent share performance of Acesian Partners Limited (Catalist:5FW) being led by its attractive financial outlook?
Most readers will already know that shares of Acesian Partners (Catalist:5FW) rose significantly by 8.9% last week. Since the market typically pays for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In particular, we will be attentive Acesian Partners’ ROE today.
Return on equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit that each dollar generates in relation to its shareholders’ investments.
See our latest analysis for Acesian Partners
How to calculate return on equity?
O formula for ROE It is:
Return on Equity = Net Profit (from continuing operations) ÷ Equity
Therefore, based on the above formula, the ROE for Acesian Partners is:
33% = S$7.6m ÷ S$23m (Based on trailing twelve months to December 2023).
The ‘return’ is the revenue the company made in the last year. This means that for every SGD1 of equity, the company generated SGD0.33 of profit.
What is the relationship between ROE and earnings growth?
We have already established that ROE serves as an efficient profit-generating indicator for a company’s future earnings. Based on how much of its profits the company chooses to reinvest or “retain”, we can then assess a company’s future ability to generate profits. Generally speaking, all other things being equal, companies with a high return on equity and profit retention have a higher growth rate than companies that do not share these attributes.
Acesian Partners Earnings Growth and 33% ROE
Firstly, we like that Acesian Partners has an impressive ROE. Furthermore, the company’s ROE is higher than the industry average of 7.4%, which is quite remarkable. Therefore, the substantial net profit growth of 55% seen by Acesian Partners over the past five years is not too surprising.
We then compared Acesian Partners’ net profit growth to the industry and are pleased to see that the company’s growth number is higher when compared to the industry which has a 10% growth rate over the same 5 year period. .
past profit growth
The basis for adding value to a company is, to a large extent, linked to the growth of its profits. The investor should attempt to establish whether the expected growth or decline in earnings, whatever the case may be, is priced in. This will help you determine whether the stock’s future looks promising or ominous. Has the market priced in the future prospects for 5FW? You can find out at our latest intrinsic value infographic research report
The story continues
Is Acesian Partners using its retained earnings effectively?
Currently, Acesian Partners does not pay any regular dividends, which essentially means that it has been reinvesting all of its profits back into the business. This definitely contributes to the high earnings growth number we discussed above.
Summary
In total, we are very happy with the performance of Acesian Partners. Particularly, we like that the company is reinvesting heavily in its business and with a high rate of return. Unsurprisingly, this has led to impressive profit growth. If the company continues to grow its profits the way it has, this could have a positive impact on its share price, given how earnings per share influence share prices over the long term. Don’t forget that stock price results also depend on the potential risks a company may face. Therefore, it is important that investors are aware of the risks involved in the business. You can see the 2 risks we identified for Acesian Partners by visiting our risk panel for free on our platform here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St has no position in any of the stocks mentioned.