6 hours Ago By Simply Wall St.
Most readers would already know that Medacta Group's (VTX:MOVE) stock increased by 3.6% over the past month. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes.
Particularly, we will be paying attention to Medacta 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for Medacta Group How Is ROE Calculated? ROE 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 Medacta Group is: 16% = €56m ÷ €344m (Based on the trailing twelve months to June 2024). The 'return' is the amount earned after tax over the last twelve months. So, this means that for every CHF1 of its shareholder's investments, the company generates a profit of CHF0.
16. 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 reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company.
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. Medacta Group's Earnings Growth And 16% ROE To begin with, Medacta Group seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 12%.
This certainly adds some context to Medacta Group's decent 18% net income growth seen over the past five years. As a next step, we compared Medacta Group's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 11%. Earnings growth is a huge factor in stock valuation.
What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects.
So, you may want to check if Medacta Group is trading on a high P/E or a low P/E , relative to its industry..
