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Is Scott Technology Limited (NZSE:SCT) stock trending downward due to worsening financial conditions?

It’s easy to ignore Scott Technology (NZSE:SCT) as its stock has fallen 3.7% over the past month. Since a company’s long-term performance usually drives market outcomes, we decided to examine the company’s financials to determine if the downtrend will continue. In this article, I chose to focus on his ROE for Scott Technology.

ROE or Return on Equity is a useful tool for evaluating how effectively a company is able to generate returns on the investment it receives from its shareholders. Simply put, it is used to assess a company’s profitability in relation to its equity capital.

Check out the latest analysis from Scott Technology.

ROE calculation method

of ROE formula teeth:

Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity

Therefore, based on the above formula, Scott Technology’s ROE is:

9.2% = NZ$9.6m ÷ NZ$104m (based on last 12 months to February 2022).

“Return” refers to the company’s earnings for the last year. One way he conceptualizes this is that for every NZ$1 of share capital held by the company, the company made a profit of NZ$0.09 for him.

What does ROE have to do with revenue growth?

So far, we’ve learned that ROE measures how efficiently a company generates profits. Based on the amount of profits the company chooses to reinvest or “retain”, the company’s ability to generate profits in the future can be assessed. Assuming everything else is equal, higher ROE and profit margins will necessarily lead to higher growth for a company compared to a company that does not have these characteristics.

Side-by-side comparison of Scott Technology’s revenue growth and 9.2% ROE

At first glance, Scott Technology’s ROE isn’t much of a story. However, more in-depth research shows that the company’s ROE is closer to his industry average of 11%. That said, Scott Technology’s five-year net profit decline was 22%. A company with a relatively low ROE. Therefore, the decrease in revenue may also be a result of this.

So, as a next step, when I compared Scott Technology’s performance to the industry, I was disappointed to find that the industry was growing at a rate of 7.6% over the same period, while the company was shrinking revenue.

Historical revenue growth

Earnings growth is a big factor in stock valuations. It is important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). This helps determine whether the stock is positioned for a bright future or a dark future. One good indicator of expected earnings growth is the P/E ratio. This determines the price the market is willing to pay for a stock based on its earnings prospects. As such, it’s a good idea to check whether Scott Technology is trading at a higher or lower P/E relative to the industry.

Is Scott Technology using its profits efficiently?

With a high three-year median payout ratio of 57% (meaning 43% of profits are retained), most of Scott Technology’s profits are paid out to shareholders, which has led to a decline in the company’s earnings. I’m explaining. Businesses are left with only a small pool of capital to reinvest. This is a vicious cycle that does not benefit the company in the long run.

In addition, Scott Technology has paid dividends for at least ten years. This suggests that maintaining dividend payments is far more important to management, even at the expense of business growth.


Overall, you should think twice before making any investment decision regarding Scott Technology. The company doesn’t see earnings growth because it holds very little earnings, and what it doesn’t hold is reinvested at a very low rate of return. Until now, we’ve only scratched the surface of a company’s past performance by looking at its fundamentals. Do your own research on Scott Technology and see what we’ve accomplished so far, for free. Detailed graph Historical Earnings, Earnings, Cash Flows.

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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …

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