mark2017's Stocks to Watch

mark2017

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Should You Be Excited About Indutrade AB (publ)’s (STO:INDT) 21% Return On Equity?
Simply Wall St January 17, 2020
Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). To keep the lesson grounded in practicality, we’ll use ROE to better understand Indutrade AB (publ) (STO:INDT).
Indutrade has a ROE of 21%, based on the last twelve months. That means that for every SEK1 worth of shareholders’ equity, it generated SEK0.21 in profit.
Check out our latest analysis for Indutrade
How Do You Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
Or for Indutrade:
21% = kr1.5b ÷ kr6.9b (Based on the trailing twelve months to September 2019.)
Most know that net profit is the total earnings after all expenses, but the concept of shareholders’ equity is a little more complicated. It is all earnings retained by the company, plus any capital paid in by shareholders. The easiest way to calculate shareholders’ equity is to subtract the company’s total liabilities from the total assets.
What Does Return On Equity Mean?
Return on Equity measures a company’s profitability against the profit it has kept for the business (plus any capital injections). The ‘return’ is the profit over the last twelve months. That means that the higher the ROE, the more profitable the company is. So, all else being equal, a high ROE is better than a low one. That means ROE can be used to compare two businesses.
Does Indutrade Have A Good ROE?
By comparing a company’s ROE with its industry average, we can get a quick measure of how good it is. Importantly, this is far from a perfect measure, because companies differ significantly within the same industry classification. As is clear from the image below, Indutrade has a better ROE than the average (17%) in the Trade Distributors industry.
OM:INDT Past Revenue and Net Income, January 17th 2020OM:INDT Past Revenue and Net Income, January 17th 2020
That is a good sign. We think a high ROE, alone, is usually enough to justify further research into a company. One data point to check is if insiders have bought shares recently.
How Does Debt Impact Return On Equity?
Most companies need money — from somewhere — to grow their profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt used for growth will improve returns, but won’t affect the total equity. That will make the ROE look better than if no debt was used.
Indutrade’s Debt And Its 21% ROE
While Indutrade does have some debt, with debt to equity of just 0.95, we wouldn’t say debt is excessive. When I see a high ROE, fuelled by only modest debt, I suspect the business is high quality. Conservative use of debt to boost returns is usually a good move for shareholders, though it does leave the company more exposed to interest rate rises.
The Bottom Line On ROE
Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. In my book the highest quality companies have high return on equity, despite low debt. All else being equal, a higher ROE is better.
 

mark2017

Established member
806 4


Simply Wall St
,
Simply Wall St.January 17, 2020



Today we are going to look at Grenergy Renovables, S.A. (BME:GRE) to see whether it might be an attractive investment prospect. To be precise, we'll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.
First of all, we'll work out how to calculate ROCE. Second, we'll look at its ROCE compared to similar companies. Last but not least, we'll look at what impact its current liabilities have on its ROCE.
Return On Capital Employed (ROCE): What is it?
ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. Generally speaking a higher ROCE is better. Ultimately, it is a useful but imperfect metric. Renowned investment researcher Michael Mauboussin has suggested that a high ROCE can indicate that 'one dollar invested in the company generates value of more than one dollar'.
How Do You Calculate Return On Capital Employed?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Grenergy Renovables:
0.20 = €12m ÷ (€110m - €47m) (Based on the trailing twelve months to June 2019.)
Therefore, Grenergy Renovables has an ROCE of 20%.
Check out our latest analysis for Grenergy Renovables
Does Grenergy Renovables Have A Good ROCE?
One way to assess ROCE is to compare similar companies. Grenergy Renovables's ROCE appears to be substantially greater than the 4.1% average in the Renewable Energy industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Regardless of the industry comparison, in absolute terms, Grenergy Renovables's ROCE currently appears to be excellent.
Grenergy Renovables has an ROCE of 20%, but it didn't have an ROCE 3 years ago, since it was unprofitable. That implies the business has been improving. The image below shows how Grenergy Renovables's ROCE compares to its industry, and you can click it to see more detail on its past growth.
BME:GRE Past Revenue and Net Income, January 17th 2020
BME:GRE Past Revenue and Net Income, January 17th 2020
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When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is, after all, simply a snap shot of a single year. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.
How Grenergy Renovables's Current Liabilities Impact Its ROCE
Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.
Grenergy Renovables has total liabilities of €47m and total assets of €110m. As a result, its current liabilities are equal to approximately 43% of its total assets. Grenergy Renovables's ROCE is boosted somewhat by its middling amount of current liabilities.
 

mark2017

Established member
806 4
Beyond Meat stock rallies after Starbucks announces plans for plant-based menu additions
MarketWatch
Tonya Garcia
,MarketWatch•January 21, 2020
Beyond Meat Inc. stock jumped 8% in Tuesday trading after news from Starbucks Corp. Chief Executive Kevin Johnson that the coffee giant aims to add more plant-based items to its menu. Starbucks stock is nearly unchanged in early trading. Beyond Meat is currently in testing mode with another restaurant giant, McDonald's Corp. , and just announced a supply agreement with pea-protein producer Roquette, which the company said will aid in further scaling of the business. Beyond Meat stock is up 7% over the last three months while the S&P 500 index is up 10.5% for the period.

https://finance.yahoo.com/m/b2bc7fd6...k-rallies.html
 

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