Forever Entertainment (WSE: FOR) has had a good run in the stock market. The stock rose a whopping 20% last month. Since the market typically pays for a company’s long-term fundamentals, we decided to examine the company’s key performance indicators to see if they could affect the market. In this article, we’ve decided to focus on Entertainment forever ROE.
Return on Equity, or ROE, is an important factor for a shareholder to consider as it indicates how effectively their capital is being reinvested. In other words, it is a profitability metric that measures the return on the capital provided by the company’s shareholders.
How do you calculate the return on equity?
The Formula for the return on equity is:
Return on Equity = Net Income (from continuing operations) ÷ Equity
So, based on the formula above, the ROE for Forever Entertainment is:
50% = zł16m ÷ zł31m (based on the last twelve months until September 2020).
The “rate of return” is the income that the company has earned over the past year. This means that for every PLN1 invested by its shareholders, the company will make a profit of PLN0.50.
Why is ROE important to earnings growth?
We have already established that ROE is an efficient profit factor for a company’s future profits. Depending on how much of those profits the company reinvests or “retains” and how effectively this is done, we can then assess a company’s earnings growth potential. In general, all other things being equal, companies with high ROE and profit sharing will have a higher rate of growth than companies that do not share these characteristics.
Forever Entertainments earnings growth and 50% ROE
Forever Entertainment has a pretty high ROE to begin with, which is interesting. Second, the company’s ROE is impressive even compared to the industry average of 24%. Hence, Forever Entertainment’s exceptional 77% earnings growth over the past five years is no surprise.
Compared to the industry net income growth, we found that Forever Entertainment’s growth is quite high compared to the industry’s average growth of 30% over the same period, which is very easy to see.
Earnings growth is an important metric to consider when valuing a stock. Next, investors need to determine whether or not the expected earnings growth is already built into the stock price. This way, they have an idea of whether the stock is being directed into clear blue water or whether marshy water is waiting for it. If you are wondering about Forever Entertainment’s rating, take a look at this this measure of the price-performance ratiocompared to its industry.
Is Forever Entertainment reinvesting its profits efficiently?
Overall, we are very pleased with the performance of Forever Entertainment. We particularly like that the company is reinvesting heavily in its business with a high return. Unsurprisingly, this has resulted in impressive earnings growth. If the company continues to grow earnings the way it has, it could have a positive impact on its share price, as earnings per share affect long-term share prices. Not to mention, the results of the stock price also depend on the potential risks a company may face. Therefore, it is important for investors to be aware of the risks associated with the business. Our risk dashboard would have the 2 risks we identified for Forever Entertainment.
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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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