With its shares down 17% in the past three months, it’s easy to overlook Brookfield Asset Management Reinsurance Partners (NYSE: BAMR). But if you pay close attention, you might find that its leading financial indicators look pretty decent, which could mean the stock could potentially rise in the long run as markets generally reward more resilient long-term fundamentals. Specifically, we’ll be paying close attention to Brookfield Asset Management Reinsurance Partners’ return on equity today.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.
Check out our latest analysis for Brookfield Asset Management Reinsurance Partners
How is ROE calculated?
the ROE formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, according to the above formula, the ROE for Brookfield Asset Management Reinsurance Partners is:
5.6% = $81 million ÷ $1.4 billion (based on trailing 12 months to March 2022).
The “yield” is the amount earned after tax over the last twelve months. Another way to think about this is that for every dollar of equity, the company was able to make a profit of $0.06.
What is the relationship between ROE and earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.
A side-by-side comparison of Brookfield Asset Management Reinsurance Partners earnings growth and ROE of 5.6%
At first glance, the return on equity of Brookfield Asset Management Reinsurance Partners is not much to say. A quick closer look shows that the company’s ROE also doesn’t compare favorably to the industry average of 12%. Despite this, surprisingly, Brookfield Asset Management Reinsurance Partners has seen exceptional net income growth of 34% over the past five years. Therefore, there could be other reasons behind this growth. Such as – high revenue retention or effective management in place.
As a next step, we benchmarked Brookfield Asset Management Reinsurance Partners’ net income growth against the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 13%. .
Earnings growth is an important metric to consider when evaluating a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or ominous. Is Brookfield Asset Management Reinsurance Partners fair valued relative to other companies? These 3 assessment metrics might help you decide.
Is Brookfield Asset Management Reinsurance Partners using its retained earnings effectively?
Since Brookfield Asset Management Reinsurance Partners does not pay any dividends to its shareholders, we infer that the company has reinvested all of its earnings to grow its business.
All in all, it looks like Brookfield Asset Management Reinsurance Partners has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very large portion of its profits back into its business no doubt contributed to the strong growth in its profits. 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. You can see the 1 risk we have identified for Brookfield Asset Management Reinsurance Partners by visiting our risk dashboard for free on our platform here.
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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.