Implenia AG (VTX IMPN) Looks Like a Quality Company
The best investment we can make in ourselves is in our knowledge and skills. This article will discuss how to use Return On Equity (ROE), to gain a better understanding of a business. Learning-by-doing will allow us to examine Implenia AG’s ROE.VTX:IMPN).
Shareholders should be aware of ROE (return on equity) as it is a measure of how well their capital has been reinvested. This is also called a profitability ratio. It measures the return on capital given by shareholders.
View our latest analysis for Implenia
How is ROE Calculated
The ROE formula is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
The ROE for Implenia, as per the formula above, is:
23% = CHF106m ÷ CHF452m (Based on the trailing twelve months to June 2022).
The profit for the past twelve months is called the’return’. This means that the company made CHF0.23 profit for every CHF1 of shareholders’ equity.
Does Implenia Have A Good Return On Equity?
A simple way of determining if a company has a high return on equity is to compare its performance to the industry average. This approach has its limitations. Some companies may be very different even within the same industry. Implenia’s ROE is a pleasant surprise. It is higher than the average (13%) in the industry. Construction industry.
This is a good sign. A high ROE does NOT always indicate high profitability. High ROE can also be caused by a higher percentage of debt in the company’s capital structure. This could indicate a large risk.
How to Consider Debt when Looking at ROE
Companies need money to increase their profits. Cash for investment can be derived from previous year profits (retained earnings), issuing shares or borrowing. In these cases, the ROE captures the capital used to grow. The second case will see the growth of returns but not the impact on shareholders’ equity. The use of debt can increase ROE, but with additional risk in the event of severe weather metaphorically.
Implenia’s Debt and Its 23% ROE
Implenia uses a lot of debt to increase its returns. It has a debt ratio of 1.10. The ROE of the company is quite impressive, but it would probably have been lower if it had not used debt. The company’s future options are limited by debt, which increases risk. You should expect to see good returns.
Conclusion
The return on equity is an indicator of how profitable a company can generate and return profits to shareholders. High returns on equity are a sign of a company’s quality. If two companies have approximately the same level in debt to equity, but one has a higher ROI, I would generally choose the one with the higher ROE.
The market will often price a high-quality business up to reflect its quality. It is important to compare profit growth rates with the expectations that are expressed in the stock price. This might be something you want to look at. data-rich interactive graph of forecasts for the company.
This is the place to go if you want to check out a different company with better financials. free list of interesting companies, that have HIGH return on equity and low debt.
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This article by Simply Wall St has a general nature. Our commentary is based on historical data, analyst forecasts and other unbiased information. We do not intend to provide financial advice. This analysis does not represent a recommendation to purchase or sell any stock and it does not consider your financial goals or financial situation. We strive to deliver long-term focused analysis that is based on fundamental data. Our analysis may not take into account the most recent price-sensitive company announcements and qualitative material. Simply Wall St does not hold any position in the stocks mentioned.
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