The impressive performance of SNC-Lavalin Group inc. (TSE:SNC) have something to do with its fundamentals?

SNC-Lavalin Group (TSE:SNC) stock is up 13% in the past three months. 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 have decided to focus on the ROE of the SNC-Lavalin Group.

Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.

See our latest analysis for SNC-Lavalin Group

How do you calculate return on equity?

ROE can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

Thus, according to the formula above, the ROE of the SNC-Lavalin Group is:

1.0% = CAD$30 million ÷ CAD$3.0 billion (based on trailing 12 months to June 2022).

The “yield” is the profit of the last twelve months. This means that for every Canadian dollar of equity, the company generated a profit of 0.01 Canadian dollars.

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 assess 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.

SNC-Lavalin Group earnings growth and ROE of 1.0%

It is difficult to say that the ROE of the SNC-Lavalin Group is very good in itself. Not only that, even compared to the industry average of 3.0%, the company’s ROE is quite unremarkable. However, the moderate growth of 7.8% in net income of the SNC-Lavalin Group over the past five years is certainly positive. Therefore, the earnings growth could likely have been caused by other variables. Such as – high revenue retention or effective management in place.

Then, comparing SNC-Lavalin Group’s net income growth with that of the industry, we found that the company’s reported growth is similar to the industry average growth rate of 9.7% over the of the same period.

TSX: SNC Prior Earnings Growth September 18, 2022

Earnings growth is an important metric to consider when evaluating a stock. 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. Is the SNC-Lavalin Group fairly valued compared to other companies? These 3 assessment metrics might help you decide.

Does the SNC-Lavalin Group use its retained earnings effectively?

In the case of the SNC-Lavalin Group, its respectable earnings growth is likely due to its low three-year median payout ratio of 0.3% (or a 100% retention ratio), suggesting that the he company invests most of its profits to grow its business.

In addition, the SNC-Lavalin Group 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 that the company’s future payout ratio is expected to reach 4.7% over the next three years. Regardless, SNC-Lavalin Group’s future ROE is expected to increase to 10% despite the anticipated increase in the payout ratio. There could likely be other factors that could drive future ROE growth.

Summary

All in all, it seems that the SNC-Lavalin Group has positive aspects in its activities. With a high reinvestment rate, albeit at a low ROE, the company managed to see considerable growth in earnings. That said, looking at current analyst estimates, we have seen that the company’s earnings are expected to accelerate. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.

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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