Atlantic Navigation Holdings (Singapore) (Catalist:5UL) has had a rough three months with its share price down 30%. 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. Particularly, we will be paying attention to Atlantic Navigation Holdings (Singapore)'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Atlantic Navigation Holdings (Singapore)

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 Atlantic Navigation Holdings (Singapore) is:

19% = US$17m ÷ US$92m (Based on the trailing twelve months to June 2023).

The 'return' is the profit over the last twelve months. That means that for every SGD1 worth of shareholders' equity, the company generated SGD0.19 in profit.

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. 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.

Atlantic Navigation Holdings (Singapore)'s Earnings Growth And 19% ROE

At first glance, Atlantic Navigation Holdings (Singapore) seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 7.5%. This probably laid the ground for Atlantic Navigation Holdings (Singapore)'s significant 44% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing Atlantic Navigation Holdings (Singapore)'s net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 44% over the last few years.