It is hard to get excited after looking at CanadaBis Capital's (CVE:CANB) recent performance, when its stock has declined 67% over the past three months. 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. Specifically, we decided to study CanadaBis Capital'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for CanadaBis Capital

How Is ROE Calculated?

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 CanadaBis Capital is:

39% = CA$3.3m ÷ CA$8.3m (Based on the trailing twelve months to January 2024).

The 'return' is the amount earned after tax 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$0.39.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

CanadaBis Capital's Earnings Growth And 39% ROE

To begin with, CanadaBis Capital has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 20% which is quite remarkable. As a result, CanadaBis Capital's exceptional 63% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared CanadaBis Capital's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 57% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you're wondering about CanadaBis Capital's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.