Premium Brands Holdings Corporation (TSE:PBH) Has A ROE Of 9.5%

Simply Wall St
·3 min read

Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). By way of learning-by-doing, we'll look at ROE to gain a better understanding of Premium Brands Holdings Corporation (TSE:PBH).

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Premium Brands Holdings

How Is ROE Calculated?

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 Premium Brands Holdings is:

9.5% = CA$171m ÷ CA$1.8b (Based on the trailing twelve months to June 2022).

The 'return' is the yearly profit. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.10 in profit.

Does Premium Brands Holdings Have A Good ROE?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. Importantly, this is far from a perfect measure, because companies differ significantly within the same industry classification. The image below shows that Premium Brands Holdings has an ROE that is roughly in line with the Food industry average (8.5%).

roe
roe

So while the ROE is not exceptional, at least its acceptable. Although the ROE is similar to the industry, we should still perform further checks to see if the company's ROE is being boosted by high debt levels. If a company takes on too much debt, it is at higher risk of defaulting on interest payments. You can see the 3 risks we have identified for Premium Brands Holdings by visiting our risks dashboard for free on our platform here.

How Does Debt Impact ROE?

Companies usually need to invest money to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. That will make the ROE look better than if no debt was used.

Premium Brands Holdings' Debt And Its 9.5% ROE

Premium Brands Holdings clearly uses a high amount of debt to boost returns, as it has a debt to equity ratio of 1.04. The combination of a rather low ROE and significant use of debt is not particularly appealing. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it.

Conclusion

Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. Companies that can achieve high returns on equity without too much debt are generally of good quality. If two companies have the same ROE, then I would generally prefer the one with less debt.

Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So I think it may be worth checking this free report on analyst forecasts for the company.

If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity and low debt.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

  • Up next
  • Up next
  • Up next
  • Up next

Latest Stories

  • Apple Touts AI Capabilities Of New iPad Pro Tablets With Cutting-Edge Chip

    Consumer electronics giant Apple on Tuesday revamped its iPad tablet family, adding a new AI-capable iPad Pro.

  • Illicit drug deaths reach 192 in March in B.C., down from last year

    VICTORIA — Another 192 people were killed in British Columbia by illicit drugs in March, 11 per cent down from the same month last year. The BC Coroners Service says the relentless toll makes illicit drugs the leading cause of death for those aged between 10 and 59, surpassing accidents, suicide, homicides and natural causes combined. At least 572 people died in the first three months of this year, and fentanyl has been detected in 85 per cent of the unregulated drug deaths that have undergone t

  • Business Insider global editor-in-chief Carlson to step down

    Business Insider's global editor-in-chief Nicholas Carlson will step down from his role at the digital news website later this summer, he said in a post on social media firm X on Tuesday. Carlson, who has been in the role since 2017, has spent more than 15 years at the news website, which is owned by German publishing giant Axel Springer SE. "My move has nothing to do with any criticism of our journalism," Carlson said in the memo that he also shared on LinkedIn.

  • Bernard Hill was ‘looking forward’ to reaction to final TV performance

    Hill played the father of Martin Freeman’s character Chris Carson in the show.

  • ‘Loving’ 911 dispatcher is killed on way to work by accused drunk driver, CA cops say

    “Antoinette impacted our agency with her sweet nature, kind heart, warm smile, and pride in being the voice on the other end of a call for help.”

  • Arkane Austin and Tango Gameworks have been shut down

    Microsoft has shuttered four ZeniMax teams: Arkane Austin, Tango Gameworks, Alpha Dog Studios and Roundhouse Games.

  • St. Louis Blues remove interim tag and name Drew Bannister full-time coach

    Drew Bannister is returning as coach of the St. Louis Blues after getting the interim tag removed from his title and being named Tuesday to the full-time role. He signed a two-year contract that gives him the chance to oversee a bit of organizational retooling but also show he can get the most out of a roster stocked with veteran talent. The expectation is still for the Blues to contend for a playoff spot in the Western Conference with Bannister in charge. Bannister, 50, replaced Craig Berube wh

  • Law Firm Claims Netflix Star Julia Haart Won’t Pay Up

    Paul ZimmermanFormer modeling mogul and Netflix star Julia Haart’s legal battles are mounting—and this time, she’s facing off against her own lawyer.Houston-based law firm Ajamie LLP sued Haart on Monday, alleging the former Elite Models CEO owes them more than $1 million in legal fees from her sprawling court fight against her ex-husband.According to the federal civil complaint, Haart hired Ajamie in February 2022 to assist on two of the ongoing lawsuits between her and Silvio Scaglia. She hire

  • Israel-Gaza live updates: Israeli troops, tanks enter Rafah in 'precise' operation

    As the Israel-Hamas war crosses the seven-month mark, renewed negotiations are underway to secure the release of hostages taken by the terrorist organization, as Israeli forces continue to prepare for an apparent invasion of the southern Gazan town of Rafah. The White House is watching the situation that is playing out in Rafah "very, very closely," but arguing that based on what Isarel has told them, this is not equivalent to the full-scale invasion the U.S. has been warning Israel against undertaking, U.S. National Security Council Coordinator John Kirby told reporters Tuesday.

  • From flooding in Brazil and Houston to brutal heat in Asia, extreme weather seems nearly everywhere

    In sweltering Brazil, worst-ever flooding killed dozens of people and paralyzed a city of about 4 million people. Voters and politicians in the world's largest election in India are fainting in heat that hit as high as 115 degrees (46.3 degrees Celsius). A brutal Asian heat wave has closed schools in the Philippines, killed people in Thailand and set records there and in Indonesia, Malaysia, the Maldives and Myanmar. Record temperatures — especially at night when it just won't cool down — have h

  • Boeing Under Investigation After ‘Several’ Employees Failed to Perform Required Wing Attachment Inspection

    The inspection is required to “confirm adequate bonding and grounding where the wings join the fuselage,” according to the FAA

  • Wife sparks debate after discovering husband used their joint account to pay for her engagement ring

    ‘Demanding someone gift you something you wouldn’t pay for yourself due to cost is scammy/bad faith/tacky,’ says Reddit commenter

  • State involvement in MoD cyber attack cannot be ruled out, Grant Shapps says

    The Defence Secretary said there is evidence of ‘potential failings’ of the contractor behind the hacked payroll system, named as SSCL in Parliament.

  • John Swinney: I’ll work with Unionists if they park independence opposition

    John Swinney has offered to work with Scotland’s Unionist parties if they park their opposition to independence, as he was voted in as the new First Minister.

  • Garrick Club to allow female members for first time

    The Garrick Club has voted to allow women members for the first time in its history, the Telegraph understands.

  • Tornado Ravages Hampton Inn in Northern Oklahoma

    A Hampton Inn was severely damaged after a tornado tore through a northeastern Oklahoma town on Monday, May 6, footage shows.Footage posted to X by Robert Nashert shows the aftermath of the tornado in Bartlesville, Oklahoma, on Tuesday. Damaged structures with missing roofs can be seen, along with tilted light poles and debris lining the road. The Hampton Inn in Bartlesville is shown with debris and trees strewn across the parking lot and on top of vehicles. “We almost stayed here last night,” Nashert is heard saying in the video. “Tore it up.”According to a local news outlet, at least one person was killed during the tornado on Monday night. Credit: Robert Nashert via Storyful

  • Sydney Airport Authority hopes to see Halifax flights return

    The CEO of the Sydney Airport Authority says he wants direct flights to Halifax to return."That's my number 1 priority and the priority of everyone I speak to in our community. 'Where do you want to go?' It's Halifax. You can connect from Halifax to just about anywhere, so that's what we're primarily focused on," Myles Tuttle told CBC News on Tuesday. Air Canada once offered direct flights between Halifax Stanfield International Airport and the J.A. Douglas McCurdy Sydney Airport but officially

  • Ottawa approves British Columbia's request to scale back drug decriminalization pilot

    OTTAWA — Mental Health and Addictions Minister Ya'ara Saks says the federal government has granted British Columbia's request to scale back its drug decriminalization pilot program. Saks says the change takes effect immediately. The province requested that Health Canada amend an exemption allowing the decriminalization of small amounts of drugs such as heroin, fentanyl, cocaine and methamphetamine. B.C. Premier David Eby said his NDP government was looking to recriminalize the use of those drugs

  • RCMP say two men dead, two others safe after boat sinks on Nova Scotia river

    GRANVILLE CENTRE, N.S. — Nova Scotia RCMP say they believe alcohol was a factor in the deaths of two men whose boat sank in the Annapolis River in Granville Centre. Police say they launched a search operation on Monday after a four-metre vessel had gone down with four people on board. When they arrived on scene the Mounties discovered that a 46-year-old Granville Centre man and a 27-year-old Weymouth man had safely made it to shore. Officials then deployed three fire services search boats, a CH-

  • Sporting KC, Union Omaha will meet in U.S. Open Cup. They share some history (& fans)

    Sporting KC manager Peter Vermes expects a competitive match in the U.S. Open Cup: “They’re going to play with everything they have.”