Does The Market Have A Low Tolerance For DFI Retail Group Holdings Limited's (SGX:D01) Mixed Fundamentals?
In This Article:
It is hard to get excited after looking at DFI Retail Group Holdings' (SGX:D01) recent performance, when its stock has declined 5.2% over the past three months. It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. In this article, we decided to focus on DFI Retail Group Holdings' 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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for DFI Retail Group Holdings
How To 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 DFI Retail Group Holdings is:
13% = US$121m ÷ US$952m (Based on the trailing twelve months to June 2024).
The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.13 in profit.
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
DFI Retail Group Holdings' Earnings Growth And 13% ROE
To begin with, DFI Retail Group Holdings seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 4.0%. Needless to say, we are quite surprised to see that DFI Retail Group Holdings' net income shrunk at a rate of 43% over the past five years. We reckon that there could be some other factors at play here that are preventing the company's growth. These include low earnings retention or poor allocation of capital.
However, when we compared DFI Retail Group Holdings' growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 9.0% in the same period. This is quite worrisome.
