Apollo Hospitals Enterprise (NSE:APOLLOHOSP) stock is up 9.2% over the past three months. Since the market generally pays for the long-term financial health of a company, we decided to study the fundamentals of the company to see if they could influence the market. In particular, we will pay attention to the ROE of Apollo Hospitals Enterprise today.
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 short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
Check out our latest analysis for Apollo Hospitals Enterprise
How is ROE calculated?
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 Apollo Hospitals Enterprise is:
16% = ₹9.3 billion ÷ ₹59 billion (based on the last twelve months to June 2022).
The “return” is the annual profit. Another way to think about this is that for every ₹1 worth of equity, the company was able to make a profit of ₹0.16.
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. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s 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 Apollo Hospitals Enterprise earnings growth and 16% ROE
For starters, Apollo Hospitals Enterprise’s ROE looks acceptable. And comparing with the industry, we found that the industry average ROE is similar at 15%. This certainly adds some context to Apollo Hospitals Enterprise’s outstanding 49% net income growth over the past five years. However, there could also be other drivers behind this growth. For example, the business has a low payout ratio or is efficiently managed.
Then, comparing with the industry net income growth, we found that Apollo Hospitals Enterprise growth is quite high compared to the industry average growth of 20% over the same period, which is great to see.
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This will help them determine if the future of the title looks bright or ominous. Is Apollo Hospitals Enterprise correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Does Apollo Hospitals Enterprise effectively reinvest its profits?
Apollo Hospitals Enterprise’s three-year median payout ratio to shareholders is 19%, which is quite low. This implies that the company retains 81% of its profits. This suggests that management reinvests most of the profits to grow the business, as evidenced by the growth seen by the business.
Also, Apollo Hospitals Enterprise has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows the company’s future payout ratio is expected to drop to 11% over the next three years. Thus, the expected decline in the payout rate explains the expected increase in the company’s ROE to 21%, over the same period.
Overall, we are quite satisfied with the performance of Apollo Hospitals Enterprise. In particular, it is good to see that the company is investing heavily in its business and, along with a high rate of return, this has resulted in significant growth in its profits. That said, a study of the latest analyst forecasts shows that the company should see a slowdown in future earnings growth. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.
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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.
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