It’s hard to get excited about Unique Fire Holdings Berhad’s (KLSE:UNIQUE) recent performance, with its share price down 10% over the past week. Since a company’s long-term performance usually drives market outcomes, we decided to examine the company’s financials to determine if the downward trend continues. In this article, I decided to focus on the following points: Unique Fire Holdings Berhad’s egg.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. In other words, ROE shows the profit generated per dollar of a shareholder’s investment.
Check out our latest analysis for Unique Fire Holdings Berhad.
How is ROE calculated?
Return on equity can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, Unique Fire Holdings Berhad’s ROE is:
3.6% = RM2.9m ÷ RM80m (Based on trailing 12 months to June 2023).
“Return” is the annual profit. This means that for every RM1 of a shareholder’s investment, the company will generate a profit of RM0.04 for him.
Why is ROE important for profit growth?
So far, we have learned that ROE measures how efficiently a company is generating its profits. Now we need to assess how much profit the company reinvests or “retains” for future growth, which gives us an idea about the company’s growth potential. All else being equal, companies with higher return on equity and profit retention typically have higher growth rates compared to companies that don’t have the same characteristics.
Unique Fire Holdings Berhad’s earnings growth and ROE 3.6%
It’s clear that Unique Fire Holdings Berhad’s ROE is quite low. Even compared to the industry average of 7.4%, the ROE figure is quite disappointing. Therefore, Unique Fire Holdings Berhad’s 31% decline in net profit over five years is not surprising given its low ROE. However, other factors may reduce revenue. For example, a company’s capital allocation is inadequate, or a company’s dividend payout ratio is too high.
So, as a next step, we compared Unique Fire Holdings Berhad’s performance with the industry and found that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 4.1% over the past few years. I was disappointed. .
The foundations that give a company value have a lot to do with its revenue growth. It’s important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). That way, you’ll know if the stock is headed for clear blue waters or if a swamp awaits. One good indicator of expected earnings growth is his P/E ratio, which determines the price the market is willing to pay for a stock based on its earnings outlook.So you might want to See if Unique Fire Holdings Berhad is trading on a high or low P/E ratiocompared to its industry.
Is Unique Fire Holdings Berhad effectively utilizing its retained earnings?
Unique Fire Holdings Berhad’s earnings decline is surprising, given that the company spends most of its profits on dividends, judging by its three-year median payout ratio of 72% (or retention rate of 28%). Not. The business is left with only a small amount of capital that can be reinvested. This is a vicious cycle that does not benefit the company in the long run. If you would like to learn about the four risks we have identified for Unique Fire Holdings Berhad, please visit our website. Risk Dashboard is free.
conclusion
Overall, Unique Fire Holdings Berhad’s performance is a pretty big disappointment. The company’s earnings growth has been slow because very little of its profits are retained, and even when they are retained, they are reinvested at very low rates of return. Until now, we’ve only skimmed the surface of the company’s past performance by looking at the company’s fundamentals.So it might be worth checking this free Detailed graph A summary of Unique Fire Holdings Berhad’s historical earnings, revenue and cash flow. Gain deeper insight into your company’s performance.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
