Helvetia Holding AG's (VTX:HELN) Stock Been Rising: Are Strong Financials Guiding The Market?

Most readers would already know that Helvetia Holding's (VTX:HELN) stock increased by 6.1% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Helvetia Holding's ROE today.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Helvetia Holding

How Is ROE Calculated?

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 Helvetia Holding is:

16% = CHF681m ÷ CHF4.2b (Based on the trailing twelve months to June 2023).

The 'return' is the yearly profit. So, this means that for every CHF1 of its shareholder's investments, the company generates a profit of CHF0.16.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

A Side By Side comparison of Helvetia Holding's Earnings Growth And 16% ROE

To begin with, Helvetia Holding seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 15%. This probably goes some way in explaining Helvetia Holding's moderate 7.1% growth over the past five years amongst other factors.

We then performed a comparison between Helvetia Holding's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 6.5% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is HELN worth today? The intrinsic value infographic in our free research report helps visualize whether HELN is currently mispriced by the market.

Is Helvetia Holding Making Efficient Use Of Its Profits?

While Helvetia Holding has a three-year median payout ratio of 63% (which means it retains 37% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Moreover, Helvetia Holding is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 59%. Accordingly, forecasts suggest that Helvetia Holding's future ROE will be 17% which is again, similar to the current ROE.

Summary

Overall, we are quite pleased with Helvetia Holding's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.