Kinatico (ASX:KYP) has had a rough month with its share price down 22%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Kinatico’s ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company’s success at turning shareholder investments into profits.
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Kinatico is:
4.1% = AU$1.1m ÷ AU$27m (Based on the trailing twelve months to June 2025).
The ‘return’ is the profit over the last twelve months. That means that for every A$1 worth of shareholders’ equity, the company generated A$0.04 in profit.
Check out our latest analysis for Kinatico
So far, we’ve learned that ROE is a measure of a company’s profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
It is hard to argue that Kinatico’s ROE is much good in and of itself. Even compared to the average industry ROE of 5.6%, the company’s ROE is quite dismal. However, we we’re pleasantly surprised to see that Kinatico grew its net income at a significant rate of 51% in the last five years. Therefore, there could be other reasons behind this growth. Such as – high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Kinatico’s growth is quite high when compared to the industry average growth of 22% in the same period, which is great to see.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is KYP fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
