Yahoo Finance Can Aquila Services Group plc's (LON:AQSG) Decent Financials Help Push Its Stock Prices Higher?
Looking at Aquila Services Group's (LON:AQSG) mostly flat share price movement over the past week, it is easy to think that there’s nothing interesting about the stock. However, its worth giving the company a closer given that its key financial performance indicators aren't particularly bad and long-term financial health is usually what drive market prices. Particularly, we will be paying attention to Aquila Services Group's ROE today.
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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for Aquila Services Group
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Aquila Services Group is:
8.1% = UK£518k ÷ UK£6.4m (Based on the trailing twelve months to March 2023).
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 £0.08 in profit.
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
A Side By Side comparison of Aquila Services Group's Earnings Growth And 8.1% ROE
When you first look at it, Aquila Services Group's ROE doesn't look that attractive. Next, when compared to the average industry ROE of 20%, the company's ROE leaves us feeling even less enthusiastic. However, the moderate 5.0% net income growth seen by Aquila Services Group over the past five years is definitely a positive. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing Aquila Services Group's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 6.2% over the last few years.
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. Is Aquila Services Group fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Aquila Services Group Using Its Retained Earnings Effectively?
Aquila Services Group has a significant three-year median payout ratio of 65%, meaning that it is left with only 35% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.
Moreover, Aquila Services Group is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend.
Summary
On the whole, we do feel that Aquila Services Group has some positive attributes. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Aquila Services Group's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
