Max Healthcare Institute (NSE:MAXHEALTH) stock is up 12% in the past month. Since stock prices are usually aligned with a company’s financial performance over the long term, we decided to take a closer look at its financial indicators to see if they had a role to play in the recent price movement. . In this article, we decided to focus on the ROE of the Max Healthcare Institute.
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 simple terms, it is used to assess the profitability of a company in relation to its equity.
Check out our latest analysis for Max Healthcare Institute
How is ROE calculated?
the ROE formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Max Healthcare Institute is:
9.3% = ₹5.5 billion ÷ ₹60 billion (based on the last twelve months to December 2021).
The “yield” is the amount earned after tax over the last twelve months. This means that for every ₹ of equity, the company generated ₹0.09 of profit.
What is the relationship between ROE and earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. 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. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
Max Healthcare Institute Earnings Growth and ROE of 9.3%
At first glance, the Max Healthcare Institute’s ROE does not look very promising. A quick closer look shows that the company’s ROE also doesn’t compare favorably to the industry average of 17%. Despite this, Max Healthcare Institute has been able to significantly increase its net profit, at a rate of 45% over the past five years. Therefore, there could be other reasons behind this growth. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio.
As a next step, we compared Max Healthcare Institute’s net income growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 16%.
Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Is Max Healthcare Institute properly rated against other companies? These 3 assessment metrics might help you decide.
Does Max Healthcare Institute effectively reinvest its profits?
Max Healthcare Institute currently pays no dividends, which essentially means that it has reinvested all of its profits back into the business. This certainly contributes to the high earnings growth number we discussed above.
All in all, it seems that Max Healthcare Institute has positive aspects for its activity. With a high reinvestment rate, albeit at a low ROE, the company managed to see considerable growth in earnings. That said, the latest forecasts from industry analysts show that the company’s earnings growth is expected to slow. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.
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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.