Corpfin Capital Prime Retail II SOCIMI (BME:YPR2) has had a great run on the share market with its stock up by a significant 28% over the last three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Corpfin Capital Prime Retail II SOCIMI's ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
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 Corpfin Capital Prime Retail II SOCIMI is:
23% = €2.6m ÷ €11m (Based on the trailing twelve months to December 2020).
The 'return' is the profit over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.23.
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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.
Corpfin Capital Prime Retail II SOCIMI's Earnings Growth And 23% ROE
First thing first, we like that Corpfin Capital Prime Retail II SOCIMI has an impressive ROE. Secondly, even when compared to the industry average of 4.3% the company's ROE is quite impressive. Under the circumstances, Corpfin Capital Prime Retail II SOCIMI's considerable five year net income growth of 31% was to be expected.
We then compared Corpfin Capital Prime Retail II SOCIMI's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 12% in the same period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Corpfin Capital Prime Retail II SOCIMI is trading on a high P/E or a low P/E, relative to its industry.
Is Corpfin Capital Prime Retail II SOCIMI Using Its Retained Earnings Effectively?
Corpfin Capital Prime Retail II SOCIMI seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 91%, meaning the company retains only 8.6% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. Despite this, the company's earnings have grown significantly as we saw above.
On the whole, we feel that Corpfin Capital Prime Retail II SOCIMI's performance has been quite good. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Corpfin Capital Prime Retail II SOCIMI's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
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