It is hard to get excited after looking at Budweiser Brewing Company APAC's (HKG:1876) recent performance, when its stock has declined 13% over the past three months. We decided to study the company's financials to determine if the downtrend will continue as the long-term performance of a company usually dictates market outcomes. Specifically, we decided to study Budweiser Brewing Company APAC's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Budweiser Brewing Company APAC

How Do You Calculate Return On Equity?

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 Budweiser Brewing Company APAC is:

7.2% = US$745m ÷ US$10b (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. Another way to think of that is that for every HK$1 worth of equity, the company was able to earn HK$0.07 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

A Side By Side comparison of Budweiser Brewing Company APAC's Earnings Growth And 7.2% ROE

At first glance, Budweiser Brewing Company APAC's ROE doesn't look very promising. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 12% either. Thus, the low net income growth of 4.2% seen by Budweiser Brewing Company APAC over the past five years could probably be the result of the low ROE.

We then compared Budweiser Brewing Company APAC's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 19% in the same 5-year period, which is a bit concerning.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Budweiser Brewing Company APAC fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Budweiser Brewing Company APAC Efficiently Re-investing Its Profits?

With a high three-year median payout ratio of 56% (or a retention ratio of 44%), most of Budweiser Brewing Company APAC's profits are being paid to shareholders. This definitely contributes to the low earnings growth seen by the company.

Additionally, Budweiser Brewing Company APAC has paid dividends over a period of five years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 75% over the next three years. Still, forecasts suggest that Budweiser Brewing Company APAC's future ROE will rise to 10% even though the the company's payout ratio is expected to rise. We presume that there could some other characteristics of the business that could be driving the anticipated growth in the company's ROE.

Conclusion

In total, we would have a hard think before deciding on any investment action concerning Budweiser Brewing Company APAC. As a result of its low ROE and lack of much reinvestment into the business, the company has seen a disappointing earnings growth rate. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.