Union Asia Enterprise Holdings (HKG: 8173) has seen strong growth in the equity market with stock rising 24% in the past three months. Since the market typically pays for a company’s long-term fundamentals, we decided to study the company’s KPIs to see if they could influence the market. Specifically, we have decided to study the ROE of Union Asia Enterprise Holdings in this article.
Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. In simpler terms, it measures a company’s profitability relative to equity.
Check out our latest analysis for Union Asia Enterprise Holdings
How to calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Union Asia Enterprise Holdings is:
31% = HK $ 16 million ÷ HK $ 52 million (based on the last twelve months up to December 2020).
The “return” is the amount earned after tax over the past twelve months. One way to conceptualize this is that for every Hong Kong dollar of equity capital it has, the company made a profit of 0.31 Hong Kong dollars.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all other things being equal, companies with a high return on equity and profit retention have a higher growth rate than companies that do not share these attributes.
A side-by-side comparison of Union Asia Enterprise Holdings’ profit growth and 31% ROE
For starters, Union Asia Enterprise Holdings has a pretty high ROE, which is interesting. Second, even compared to the industry average of 9.7%, the company’s ROE is quite impressive. So the substantial 34% net income growth seen by Union Asia Enterprise Holdings over the past five years is not too surprising.
Then comparing with the net income growth of the industry, we found that the growth of Union Asia Enterprise Holdings is quite high compared to the industry average growth of 16% over the same period, which is great. to have.
The basis for attaching value to a business is, to a large extent, related to the growth of its profits. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This then helps them determine whether the stock is set for a bright or gloomy future. 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 Union Asia Enterprise Holdings is trading high P / E or low P / E, relative to its industry.
Is Union Asia Enterprise Holdings Efficiently Reinvesting Profits?
Overall, we are very pleased with the performance of Union Asia Enterprise Holdings. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in tremendous growth in its profits. If the company continues to grow its earnings as it has, it could have a positive impact on its stock price given the influence of earnings per share on stock prices over the long term. Let’s not forget that trading risk is also one of the factors that affect the price of the stock. So this is also an important area that investors should pay attention to before making a decision on a business. You can see the 3 risks we have identified for Union Asia Enterprise Holdings by visiting our risk dashboard for free on our platform here.
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