Does finance have a role to play?

Westshore Terminals Investment (TSE:WTE) stock has increased by 8.9% over the past three months. Since a company’s long-term fundamentals typically drive market outcomes, we wonder what role, if any, a company’s financials play in price movements. I am thinking. In this article, we decided to focus on Westshore Terminals Investment’s ROE.

Return on equity or ROE is a key measure used to evaluate how efficiently a company’s management is utilizing the company’s capital. In other words, it is a profitability ratio that measures the rate of return on the capital provided by a company’s shareholders.

See our latest analysis for investing in Westshore Terminal.

How do I calculate return on equity?

of Formula for calculating return on equity teeth:

Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity

So, based on the above formula, the ROE for Westshore Terminal Investment is:

13% = CAD 96 million ÷ CAD 740 million (based on the trailing twelve months to September 2023).

“Return” is the annual profit. One way he conceptualizes this is that for every CA$1 of shareholders’ equity, the company made CA$0.13 of his profit.

What relationship does ROE have with profit growth?

So far, we have learned that ROE is a measure of a company’s profitability. We are then able to assess a company’s future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” Assuming everything else remains constant, the higher the ROE and profit retention, the higher the company’s growth rate compared to companies that don’t necessarily have these characteristics.

A side-by-side comparison of Westshore Terminals Investment’s earnings growth and ROE of 13%.

First, Westshore Terminals Investment’s ROE looks acceptable. Even compared to the industry average of 14%, the company’s ROE looks pretty decent. As you might imagine, the 10% decline in net income reported by Westshore Terminals Investment is a bit of a surprise. We think there may be other factors at play here that are holding back the company’s growth. For example, if a company pays out a large portion of its earnings as dividends or if it faces competitive pressures.

story continues

So, as a next step, we compared Westshore Terminals Investment’s performance with the industry and found that while the company has been shrinking its revenues, the industry has grown its revenues at a rate of 22% over the past few years. I was disappointed.

Earnings growth is an important metric to consider when evaluating a stock. In any case, investors should seek to ascertain whether expected earnings growth or decline has been factored in. Doing so will help you determine whether a stock’s future is promising or ominous. Is Westshore Terminals Investment fairly valued compared to other companies? These 3 valuation metrics may help you decide.

Is the investment in Westshore Terminals an efficient use of profits?

Westshore Terminals Investment has a high three-year median payout ratio of 61% and retains 39% of its profits. This suggests that the company pays out most of its profits to shareholders as dividends. This goes some way to explaining why the company’s profits are shrinking. Since only a small amount is reinvested into the business, earnings growth will obviously be low or non-existent. Please visit our website for information on the two risks we have identified regarding Westshore Terminals Investment. risk dashboard It is available for free on this platform.

Additionally, Westshore Terminals Investment has been paying dividends for at least 10 years. This means the company’s management is determined to pay dividends even if there is little or no growth in profits. According to our latest analyst data, the company’s future dividend payout ratio is expected to rise to 107% over the next three years.

conclusion

Overall, we feel that Westshore Terminals Investment certainly has some positive factors to consider. However, the low profit growth is a bit concerning, especially given the company’s high profitability. Investors could have benefited from a higher ROE if the company had reinvested more of its profits. As mentioned earlier, the company retains a small portion of its profits. Having said that, we researched the latest analyst forecasts and found that analysts expect the company’s earnings growth to improve slightly. Sure enough, this may bring some comfort to shareholders. Learn more about the company’s future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.

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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.