12/4/2023 0 Comments Yahoo finance stocks in playThis article by Simply Wall St is general in nature. Alternatively, email editorial-team (at). Have feedback on this article? Concerned about the content? Get in touch with us directly. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. As discussed earlier, the company is retaining a small portion of its profits. Investors could have benefitted from the high ROE, had the company been reinvesting more of its earnings. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return. On the whole, we do feel that Nichols has some positive attributes. As a result, the expected drop in Nichols' payout ratio explains the anticipated rise in the company's future ROE to 22%, over the same period. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 50% over the next three years. Moreover, Nichols has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures. Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. For this reason, Nichols' five year net income decline of 41% raises the question as to why the decent ROE didn't translate into growth. And on comparing with the industry, we found that the the average industry ROE is similar at 13%. Nichols' Earnings Growth And 13% ROEĪt first glance, Nichols seems to have a decent ROE. 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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Thus far, we have learned that ROE measures how efficiently a company is generating its profits. What Is The Relationship Between ROE And Earnings Growth? Another way to think of that is that for every £1 worth of equity, the company was able to earn £0.13 in profit. The 'return' refers to a company's earnings over the last year. So, based on the above formula, the ROE for Nichols is:ġ3% = UK£12m ÷ UK£92m (Based on the trailing twelve months to June 2023). Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity View our latest analysis for Nichols How Do You Calculate Return On Equity? In short, ROE shows the profit each dollar generates with respect to its shareholder investments. ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Particularly, we will be paying attention to Nichols' ROE today. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Most readers would already know that Nichols' (LON:NICL) stock increased by 2.4% over the past month.
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