Is Fraser & Neave Holdings Bhd's (KLSE:F&N) Recent Stock Performance Influenced By Its Financials In Any Way?
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Fraser & Neave Holdings Bhd's (KLSE:F&N) stock is up by 5.6% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Fraser & Neave Holdings Bhd's ROE today.
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.
View our latest analysis for Fraser & Neave Holdings Bhd
How To Calculate Return On Equity?
Return on equity 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 Fraser & Neave Holdings Bhd is:
14% = RM514m ÷ RM3.6b (Based on the trailing twelve months to December 2023).
The 'return' is the yearly profit. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.14 in profit.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Fraser & Neave Holdings Bhd's Earnings Growth And 14% ROE
To begin with, Fraser & Neave Holdings Bhd seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 15%. Fraser & Neave Holdings Bhd's decent returns aren't reflected in Fraser & Neave Holdings Bhd'smediocre five year net income growth average of 3.8%. A few likely reasons that could be keeping earnings growth low are - the company has a high payout ratio or the business has allocated capital poorly, for instance.
We then compared Fraser & Neave Holdings Bhd's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 9.6% in the same 5-year period, which is a bit concerning.
