Remedy Entertainment Oyj (HEL:REMEDY) has had a great run in the stock market, with the stock up a whopping 23% over the past month. 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 typically drives market results. In this article, we decided to focus on the ROE of Remedy Entertainment Oyj.
Return on Equity, or ROE, is a key metric used to assess how efficiently a company’s management is using the company’s capital. In short, ROE shows the profit each dollar generates in relation to its shareholders’ investments.
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How is ROE calculated?
That Formula for return on equity is:
Return on Equity = Net Income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Remedy Entertainment Oyj is:
11% = €9.3M ÷ €87M (based on trailing 12 months ending June 2022).
“Yield” refers to a company’s profits over the last year. This means that for every €1 invested by its shareholders, the company generates a profit of €0.11.
Why is ROE important for earnings growth?
So far we’ve 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. In general, companies with a high return on equity and earnings retention, all other things being equal, have a higher growth rate than companies that do not share these characteristics.
A head-to-head comparison of Remedy Entertainment Oyj’s earnings growth and 11% ROE
First of all, Remedy Entertainment Oyj’s ROE looks acceptable. Whatever the case, the company’s ROE is still well below the industry average of 15%. However, we are pleased with the impressive 45% net income growth reported by Remedy Entertainment Oyj over the past five years. We assume that other factors could play a role here. For example, the company has a low payout ratio or is run efficiently. Keep in mind that the company has a respectable ROE. It’s just that the ROE of the industry is higher. This certainly provides some context for the company’s strong earnings growth as well.
Next, when comparing the industry net income growth, we found that Remedy Entertainment Oyj’s growth is quite high compared to the industry average growth of 14% over the same period, which is great to see.
Much of the basis for increasing the value of a company is 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). This allows them to determine if the stock’s future looks bright or ominous. Has the market priced in future prospects for REMEDY? You can find out in our latest intrinsic value research report in the form of an infographic.
Does Remedy Entertainment Oyj use its retained earnings effectively?
Remedy Entertainment Oyj’s three-year average payout ratio is on the lower side at 23%, suggesting the company retains a higher percentage (77%) of its earnings. So, it looks like Remedy Entertainment Oyj is heavily reinvesting profits to grow its business, which is reflected in its earnings growth.
Additionally, Remedy Entertainment Oyj has paid dividends over a four-year period, meaning the company is pretty serious about sharing its profits with shareholders. Based on the latest analyst estimates, we have found that the company’s future payout ratio is expected to remain steady at 23% for the next three years. However, Remedy Entertainment Oyj’s future ROE is expected to drop to 6.3%, although not much change is expected in the company’s payout ratio.
Overall, we think Remedy Entertainment Oyj’s performance is quite good. We particularly like that the company reinvests heavily in its business at a modest rate of return. Unsurprisingly, this has resulted in impressive earnings growth. The latest forecasts from industry analysts show that the company is expected to maintain its current growth rate. To learn more about the company’s future earnings growth projections, take a look free Report on analyst forecasts for the company to learn more.
The assessment is complex, but we help to simplify it.
find out if Remedy Entertainment Oyj may be over or under priced by reviewing our comprehensive analysis which includes the following Fair Value Estimates, Risks and Warnings, Dividends, Insider Trading and Financial Health.
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