Green Brick Partners (NYSE:GRBK) stock has increased by a significant 19% over the past three months. Considering the company's impressive performance, we decided to take a closer look at its financial metrics, as a company's financial health over the long term usually drives market results. In particular, I would like to pay attention to Green Brick Partners' ROE today.
Return on equity or ROE is a key measure used to evaluate how efficiently a company's management is utilizing the company's capital. Simply put, it is used to evaluate a company's profitability compared to its equity.
See our latest analysis for Green Brick Partners.
How do I calculate return on equity?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Green Brick Partners' ROE is:
22% = USD 287 million ÷ USD 1.3 billion (based on trailing twelve months to September 2023).
“Return” is the annual profit. This means that for every $1 a shareholder invests, the company generates $0.22 in profit for him.
What relationship does ROE have with profit growth?
So far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company's earnings growth potential. Generally, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
A side-by-side comparison of Green Brick Partners' earnings growth and ROE of 22%.
At first glance, Green Brick Partners appears to have a decent ROE. His ROE for the company looks pretty good, especially when compared to the industry average of 16%. This certainly gives some context to Green Brick Partners' exceptional net income growth of 39% over the past five years. However, there may be other causes behind this growth. For example, the company's management may have made some good strategic decisions, or the company may have a low dividend payout ratio.
We then compare it to the industry's net income growth rate and find that Green Brick Partners has a very high growth rate when compared to the industry average growth rate of 25% over the same period, which is great.
Earnings growth is an important metric to consider when evaluating a stock. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. This can help you decide whether to position the stock for a bright or bleak future. If you're wondering about Green Brick Partners's valuation, check out this gauge of its price-to-earnings ratio compared to its industry.
Is Green Brick Partners using its profits efficiently?
Given that Green Brick Partners does not pay dividends to shareholders, we can assume that the company reinvests all of its profits into growing its business.
Overall, we feel that Green Brick Partners' performance has been very good. In particular, it's great to see that the company has invested heavily in its business, delivering strong revenue growth along with high rates of return. Having said that, a review of the latest analyst forecasts indicates that the company's future revenue growth is expected to slow. Learn more about the company's future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.