As a result, Halma's ROE is not expected to change by much either, which we inferred from the analyst estimate of 17% for future ROE. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 28% of its profits over the next three years. Halma has a healthy combination of a moderate three-year median payout ratio of 34% (or a retention ratio of 66%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.Īdditionally, Halma has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Story continues Is Halma Making Efficient Use Of Its Profits? When you consider the fact that the industry earnings have shrunk at a rate of 6.7% in the same period, the company's net income growth is pretty remarkable. This certainly adds some context to Halma's decent 12% net income growth seen over the past five years. Especially when compared to the industry average of 9.0% the company's ROE looks pretty impressive. To start with, Halma's ROE looks acceptable. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics. 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. So far, we've learned that ROE is a measure of a company's profitability. Why Is ROE Important For Earnings Growth? That means that for every £1 worth of shareholders' equity, the company generated £0.17 in profit.
The 'return' refers to a company's earnings over the last year. So, based on the above formula, the ROE for Halma is:ġ7% = UK£244m ÷ UK£1.4b (Based on the trailing twelve months to March 2022). Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
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