With its stock down 21% over the past month, it’s easy to overlook Bittnet Systems (BVB:BNET). But if you pay close attention, you might realize that its strong financials could mean the stock could potentially see a long-term rise in value, as the markets generally reward companies in good financial shape. In this article, we decided to focus on the ROE of Bittnet Systems.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.
See our latest analysis for Bittnet Systems
How to calculate return on equity?
the return on equity formula East:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the formula above, the ROE for Bittnet Systems is:
24% = 12m RON ÷ 49m RON (Based on the last twelve months to September 2021).
The “yield” is the profit of the last twelve months. This therefore means that for each RON1 of its shareholder’s investments, the company generates a profit of RON0.24.
What is the relationship between ROE and earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
A side-by-side comparison of Bittnet Systems’ earnings growth and 24% ROE
First, we recognize that Bittnet Systems has a significantly high ROE. Second, a comparison to the average industry-reported ROE of 16% also does not go unnoticed for us. This likely paved the way for the modest 12% net income growth seen by Bittnet Systems over the past five years. growth
Then, comparing Bittnet Systems’ net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 14% over the same period.
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or ominous. A 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 outlook. So, you might want to check if Bittnet Systems is trading on a high P/E or a low P/E, relative to its industry.
Does Bittnet Systems effectively reinvest its profits?
Since Bittnet Systems does not pay any dividends to its shareholders, we infer that the company has reinvested all its profits to grow its business.
Overall, we feel that Bittnet Systems’ performance has been quite good. In particular, it is good to see that the company is investing heavily in its business, and together with a high rate of return, this has led to significant growth in its profits. If the company continues to increase its earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Not to mention that stock price results also depend on the potential risks that a company may face. It is therefore important for investors to be aware of the risks associated with the business. To learn about the 4 risks we have identified for Bittnet Systems, visit our risk dashboard for free.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.