Interroll Holding (VTX:INRN) has had a great run on the share market with its stock up by a significant 14% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Interroll Holding’s ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
See our latest analysis for Interroll Holding
How Do You Calculate Return On Equity?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Interroll Holding is:
16% = CHF66m ÷ CHF411m (Based on the trailing twelve months to December 2023).
The ‘return’ is the amount earned after tax over the last twelve months. So, this means that for every CHF1 of its shareholder’s investments, the company generates a profit of CHF0.16.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.
A Side By Side comparison of Interroll Holding’s Earnings Growth And 16% ROE
To begin with, Interroll Holding seems to have a respectable ROE. Further, the company’s ROE is similar to the industry average of 18%. This certainly adds some context to Interroll Holding’s moderate 7.5% net income growth seen over the past five years.
Next, on comparing Interroll Holding’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 8.1% over the last few years.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you’re wondering about Interroll Holding’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Interroll Holding Making Efficient Use Of Its Profits?
With a three-year median payout ratio of 32% (implying that the company retains 68% of its profits), it seems that Interroll Holding is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that’s well covered.
Besides, Interroll Holding has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts’ consensus data, we found that the company is expected to keep paying out approximately 37% of its profits over the next three years. Regardless, the future ROE for Interroll Holding is predicted to rise to 20% despite there being not much change expected in its payout ratio.
Conclusion
On the whole, we feel that Interroll Holding’s performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, looking at the current analyst estimates, we found that the company’s earnings are expected to gain momentum. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
