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The Belvoir Group (LON: BLV) has had a great run in the stock market with a significant 11% increase in the share last week. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market results. In particular, we decided to examine the Belvoir Group’s ROE in this article.
ROE, or return on equity, is a useful tool for assessing how effectively a company can generate returns on the investments received from its shareholders. In simpler terms, it measures a company’s profitability in relation to its equity.
Check out our latest analysis for the Belvoir Group
How is the ROE calculated?
the Formula for ROE is:
Return on Equity = Net Income (from continuing operations) ÷ Equity
Based on the above formula, the ROE for the Belvoir Group is:
20% = UK £ 6.2m UK £ 31m (based on the last twelve months through June 2021).
“Return” refers to a company’s earnings over the past year. Another way to imagine this is that for every £ 1 worth of equity the company was able to make £ 0.20 in profit.
Why is ROE important to earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth, which then gives us an idea of the company’s growth potential. Assuming everything else stays the same, the higher the rate of growth of a company compared to companies that do not necessarily have these characteristics, the higher the ROE and earnings retention.
A side-by-side comparison of earnings growth and 20% ROE for the Belvoir Group
First of all, the Belvoir Group’s ROE looks acceptable. Compared to the industry’s average ROE of 12%, the company’s ROE looks pretty remarkable. This certainly adds some context to the Belvoir Group’s exceptional net profit growth of 22% over the past five years. We assume that other factors could also play a role here. For example, it is possible that management has made good strategic decisions or the company has a low payout ratio.
Next, when we compared it to industry net income growth, we found that the growth figure reported by the Belvoir Group compares favorably with the industry average, which is down 3.7% over the same period.
Earnings growth is a big factor in stock valuation. It is important for an investor to know if the market has factored in the company’s expected earnings growth (or decline). This then helps them determine whether the stock is placed for a bright or bleak future. What is BLV worth today? The infographic on intrinsic value in our free research report helps to visualize whether BLV is currently being mispriced by the market.
Does the Belvoir Group use its profits efficiently?
The mean payout ratio of the Belvoir Group for the three years is 46%, which is moderately low. The company retains the remaining 54%. It looks like the dividend is well covered and the Belvoir Group is reinvesting its profits efficiently, as evidenced by the extraordinary growth mentioned above.
Additionally, the Belvoir Group has paid dividends over a nine-year period, which means the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the company’s future payout ratio is projected to be around 47% over the next three years. Accordingly, forecasts assume that the future ROE of the Belvoir Group will be 20%, which in turn is similar to the current ROE.
summary
Overall, we are very satisfied with the performance of the Belvoir Group. We particularly like the fact that the company reinvests heavily in its business and does so with a high return. Unsurprisingly, this has resulted in impressive earnings growth. However, as forecast in the latest analyst estimates, the company’s earnings growth is likely to slow. Are these analyst expectations based on broad industry expectations or company fundamentals? Click here to go to our analysts forecast page for the company.
This article from Simply Wall St is of a general nature. We only provide comments based on historical data and analyst projections using an unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
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