Most readers will already know that Innovative Solutions and Support (NASDAQ:ISSC) stock is up 4.9% over the past week. Given that markets reward strong financials over the long term, I wonder if this is the case. Specifically, I chose to explore the ROE of Innovative Solutions and Support for this article.
Return on equity, or ROE, tests how effectively a company enhances its value and manages investors’ money. In other words, it shows that we have succeeded in turning shareholder investment into profit.
See our latest analysis on innovative solutions and support
How to calculate return on equity
of ROE formula teeth:
Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity
So based on the formula above, the ROE for innovative solutions and support would be:
18% = US$5.5 million ÷ US$31 million (based on the last 12 months to September 2022).
“Revenue” is the income a business earned in the last year. So for $1 worth of shareholders’ equity, the company made $0.18 in profit.
What is the relationship between ROE and profit growth?
It has already been established that ROE serves as an efficient profit-making metric to gauge a company’s future earnings. Depending on how much of these earnings a company reinvests or “holds” and how effective it is, a company’s potential for revenue growth can be assessed. All else being equal, companies with both high return on equity and high profit margins typically have higher growth rates compared to companies without the same capabilities.
Side-by-side comparison of innovative solutions and support revenue growth and 18% ROE
At first glance, innovative solutions and support appear to have decent ROE. Moreover, his ROE for the company is very good compared to the industry average of 10%. This probably laid the groundwork for Innovative Solutions and Support’s massive 39% net profit growth seen over the past five years. We believe there are other aspects that are also having a positive impact on the company’s revenue growth. and so on – maintenance of high profitability or proper efficient management.
Next, when compared to industry net profit growth, we found that innovative solutions and support grew significantly faster than the industry average growth of 7.4% over the same period. This is great.
Earnings growth is a big factor in stock valuations. Investors should assess whether expected revenue growth or decline is expected. That way, you’ll know if stocks are headed for clear blue waters, or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio. This determines the price the market is willing to pay for a stock based on its earnings prospects. As such, it’s a good idea to check whether your innovative solutions and support are trading at a higher or lower P/E relative to your industry.
Are your innovative solutions and support efficiently reinvesting your profits?
Innovative Solutions and Support does not currently pay any dividends. This basically means that you are reinvesting all your profits back into your business. This definitely contributes to the high revenue growth rate discussed above.
Overall, I am very satisfied with the innovative solution and the performance of the support. I especially like that the company has reinvested heavily in their business and is delivering a high rate of return. Not surprisingly, this translates into impressive profit growth.
Do you have feedback on this article? What interests you? contact directly with us. Or send an email to our editorial team (at) Simplywallst.com.
This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …
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