Profit ratio

Are the fundamentals of Tribune Resources Limited (ASX:TBR) good enough to warrant a purchase given the stock’s recent weakness?

It’s hard to get excited after watching the recent performance of Tribune Resources (ASX:TBR), as its stock is down 19% in the past three months. However, the company’s fundamentals look pretty decent and long-term financials are generally in line with future market price movements. In this article, we decided to focus on Tribune Resources DEER.

Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

See our latest analysis for Tribune Resources

How to calculate return on equity?

The return on equity formula is:

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

So, based on the above formula, the ROE for Tribune Resources is:

13% = AU$38 million ÷ AU$297 million (based on trailing 12 months to December 2021).

“Yield” refers to a company’s earnings over the past year. Another way to think about this is that for every 1 Australian dollar of equity, the company was able to make a profit of 0.13 Australian dollars.

What does ROE have to do with earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. Based on the share of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

A side-by-side comparison of Tribune Resources’ earnings growth and 13% ROE

At first glance, Tribune Resources appears to have a decent ROE. And comparing with the industry, we found that the industry average ROE is similar at 16%. Despite the subdued return on equity, Tribune Resources has posted net profit growth of 2.1% over the past five years. Some likely reasons that could keep earnings growth low are: the company has a high payout ratio or the company has misallocated capital, for example.

As a next step, we benchmarked Tribune Resources’ net income growth against the industry and were disappointed to see that the company’s growth is below the industry average growth of 26% over the course of the year. same period.

past earnings-growth

Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This will help them determine if the future of the title looks bright or ominous. Is Tribune Resources correctly valued compared to other companies? These 3 recovery measures might help you decide.

Is Tribune Resources using its retained earnings effectively?

While Tribune Resources has a decent three-year median payout ratio of 30% (or a retention rate of 70%), it has seen very little earnings growth. So there could be other factors at play here that could potentially impede growth. For example, the company had to deal with headwinds.

Additionally, Tribune Resources has paid dividends over a five-year period, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of company growth.

Summary

All in all, it seems that Tribune Resources has positive aspects for its business. Still, the weak earnings growth is a bit of a concern, especially since the company has a high rate of return and reinvests a huge portion of its earnings. At first glance, there could be other factors, which do not necessarily control the business, that are preventing growth. While we wouldn’t completely dismiss the business, what we would do is try to figure out how risky the business is to make a more informed decision about the business. Our risk dashboard will have the 1 risk we have identified for Tribune Resources.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.