Crypto Blockchain Industries (EPA:ALCBI) has had a rough three months with its share price down 16%. However, the company’s fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Crypto Blockchain Industries’ ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
View our latest analysis for Crypto Blockchain Industries
How Is ROE Calculated?
ROE 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 Crypto Blockchain Industries is:
5.9% = €1.3m ÷ €22m (Based on the trailing twelve months to March 2023).
The ‘return’ is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each €1 of shareholders’ capital it has, the company made €0.06 in profit.
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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.
A Side By Side comparison of Crypto Blockchain Industries’ Earnings Growth And 5.9% ROE
At first glance, Crypto Blockchain Industries’ ROE doesn’t look very promising. Next, when compared to the average industry ROE of 11%, the company’s ROE leaves us feeling even less enthusiastic. However, we we’re pleasantly surprised to see that Crypto Blockchain Industries grew its net income at a significant rate of 42% in the last five years. So, there might be other aspects that are positively influencing the company’s earnings growth. Such as – high earnings retention or an efficient management in place.
As a next step, we compared Crypto Blockchain Industries’ net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 15%.
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. This then helps them determine if the stock is placed for a bright or bleak future. If you’re wondering about Crypto Blockchain Industries”s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Crypto Blockchain Industries Efficiently Re-investing Its Profits?
Given that Crypto Blockchain Industries doesn’t pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
Summary
On the whole, we do feel that Crypto Blockchain Industries has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. While we won’t completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 2 risks we have identified for Crypto Blockchain Industries by visiting our risks dashboard for free on our platform here.
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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.