Regardless, the future ROE for Qube Holdings is predicted to rise to 7.6% despite there being not much change expected in its payout ratio. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 64% of its profits over the next three years. Moreover, Qube Holdings has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. With only a little being reinvested into the business, earnings growth would obviously be low or non-existent. Qube Holdings' declining earnings is not surprising given how the company is spending most of its profits in paying dividends, judging by its three-year median payout ratio of 58% (or a retention ratio of 42%). Is Qube Holdings Efficiently Re-investing Its Profits? So that's what might be causing earnings growth to shrink. Remember, the company's ROE is a bit low to begin with. But Qube Holdings saw a five year net income decline of 20% over the past five years. Yet, a closer study shows that the company's ROE is similar to the industry average of 5.4%. A Side By Side comparison of Qube Holdings' Earnings Growth And 4.5% ROEĪt first glance, Qube Holdings' ROE doesn't look very promising. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes. 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. We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. What Has ROE Got To Do With Earnings Growth? One way to conceptualize this is that for each A$1 of shareholders' capital it has, the company made A$0.05 in profit. The 'return' refers to a company's earnings over the last year. So, based on the above formula, the ROE for Qube Holdings is:Ĥ.5% = AU$136m ÷ AU$3.0b (Based on the trailing twelve months to June 2022). Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity See our latest analysis for Qube Holdings How Is ROE Calculated? Put another way, it reveals the company's success at turning shareholder investments into profits. ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Specifically, we decided to study Qube Holdings' ROE in this article. However, in this article, we decided to focus on its weak fundamentals, as long-term financial performance of a business is what ultimatley dictates market outcomes. Qube Holdings (ASX:QUB) has had a great run on the share market with its stock up by a significant 6.5% over the last month.
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