Most readers already know that shares of Max Ventures and Industries (NSE: MAXVIL) have risen significantly by 47% in the past three months. We wonder if and what role company financials are playing in this price change, as a company’s long-term fundamentals usually dictate market outcomes. In this article, we have decided to focus on the ROE of Max Ventures and Industries.
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 short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
Check out our latest review for Max Ventures and Industries
How is the ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, the ROE of Max Ventures and Industries is:
9.9% = â¹ 1.2b Ã· â¹ 12b (based on the last twelve months up to September 2021).
The âreturnâ is the annual profit. So this means that for every 1 of its shareholder’s investments, the company generates a profit of â¹ 0.10.
What is the relationship between ROE and profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on how much of those profits the company reinvests or âwithholdsâ and its efficiency, we are then able to assess a company’s profit growth potential. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.
A side-by-side comparison of Max Ventures and Industries profit growth and ROE of 9.9%
At first glance, the ROE of Max Ventures and Industries is not much to say. A quick follow-up study shows that the company’s ROE also does not compare favorably to the industry average of 15%. Despite this, Max Ventures and Industries has been able to significantly increase its bottom line, at a rate of 50% over the past five years. We think there might be other factors at play here. For example, the business has a low payout ratio or is managed efficiently.
In the next step, we compared the net income growth of Max Ventures and Industries with the industry and luckily we found that the growth observed by the company is above the industry average growth by 18%. .
The basis for attaching value to a business is, to a large extent, related 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 then helps him determine whether the stock is set for a bright or dark future. If you are wondering about the valuation of Max Ventures and Industries, check out this gauge of its price / earnings ratio, relative to its industry.
Is Max Ventures and Industries Efficiently Reinvesting Its Profits?
Since Max Ventures and Industries does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.
All in all, it seems that Max Ventures and Industries has positive aspects for its business. Even despite the low rate of return, the company has shown impressive profit growth by reinvesting heavily in its operations. While we don’t completely reject the business, what we would do is try to determine how risky the business is in order to make a more informed decision about the business. To know the 2 risks that we have identified for Max Ventures and Industries, visit our risk dashboard free of charge.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St does not have any position in the mentioned stocks.
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