Should You Be Impressed By Taseko Mines Limited's (TSE:TKO) ROE?

editorial-team@simplywallst.com (Simply Wall St)
3 min read
1
In this article:

While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. To keep the lesson grounded in practicality, we'll use ROE to better understand Taseko Mines Limited (TSE:TKO).

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Taseko Mines

How To 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 Taseko Mines is:

19% = CA$83m ÷ CA$434m (Based on the trailing twelve months to December 2023).

The 'return' is the income the business earned over the last year. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.19 in profit.

Does Taseko Mines Have A Good Return On Equity?

One simple way to determine if a company has a good return on equity is to compare it to the average for its industry. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. As you can see in the graphic below, Taseko Mines has a higher ROE than the average (8.5%) in the Metals and Mining industry.

roe
roe

That is a good sign. With that said, a high ROE doesn't always indicate high profitability. Especially when a firm uses high levels of debt to finance its debt which may boost its ROE but the high leverage puts the company at risk. You can see the 3 risks we have identified for Taseko Mines by visiting our risks dashboard for free on our platform here.

The Importance Of Debt To Return On Equity

Most companies need money -- from somewhere -- to grow their profits. That cash can come from retained earnings, issuing new shares (equity), 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 used for growth will improve returns, but won't affect the total equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.

Taseko Mines' Debt And Its 19% ROE

Taseko Mines does use a high amount of debt to increase returns. It has a debt to equity ratio of 1.43. While its ROE is pretty respectable, the amount of debt the company is carrying currently is not ideal. Investors should think carefully about how a company might perform if it was unable to borrow so easily, because credit markets do change over time.

Conclusion

Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. A company that can achieve a high return on equity without debt could be considered a high quality business. All else being equal, a higher ROE is better.

But when a business is high quality, the market often bids it up to a price that reflects this. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. So you might want to take a peek at this data-rich interactive graph of forecasts for the company.

Of course Taseko Mines may not be the best stock to buy. So you may wish to see this free collection of other companies that have high ROE 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.

Advertisement

Recommended Stories

  • Analyst revamps Nvidia stock price target ahead of earnings

    Here's what could happen next to Nvidia's shares

  • Super Micro Computer (SMCI) Q3 Earnings Beat Estimates

    Super Micro (SMCI) delivered earnings and revenue surprises of 15.05% and 2.89%, respectively, for the quarter ended March 2024. Do the numbers hold clues to what lies ahead for the stock?

  • 1 Magnificent Artificial Intelligence (AI) Semiconductor Stock to Buy Before It Soars Higher

    This semiconductor company is witnessing a sharp jump in growth thanks to AI, and investors can still get a great deal on its stock.

  • Super Micro Sales Fail to Clear High Investor Expectations

    (Bloomberg) -- Super Micro Computer Inc. reported quarterly sales that tripled from the same period last year but fell slightly short of estimates, disappointing investors who had sky-high expectations that the server maker’s business would benefit from AI-related demand.Most Read from BloombergTesla Axes Most of Supercharger Team in Blow to Other AutomakersTraders Expect Biggest Fed-Day Move in S&P Since 2023, Citi SaysWall Street Hit by Fed Jitters to Close Wild April: Markets WrapPot Stocks S

  • China’s $170bn gold rush triggers Taiwan invasion fears

    China has built up a $170bn (£135bn) stockpile of gold after a record buying spree, in a move that has raised fears Beijing is preparing its economy for a possible conflict over Taiwan.

  • Stocks Slip, Dollar Ticks Higher Before Fed: Markets Wrap

    (Bloomberg) -- Stocks edged lower and the dollar rose on renewed concern about higher-for-longer US interest rates, with all eyes on the Federal Reserve’s policy decision due later Wednesday. Most Read from BloombergTesla Axes Most of Supercharger Team in Blow to Other AutomakersTraders Expect Biggest Fed-Day Move in S&P Since 2023, Citi SaysWall Street Hit by Fed Jitters to Close Wild April: Markets WrapPot Stocks Surge on Report DEA Set to Reclassify MarijuanaHSBC CEO Quinn Unexpectedly Steps

  • Bitcoin slides below $58,000, rattled by tougher Fed rate outlook

    Bitcoin fell for a third day on Wednesday, having posted its worst monthly performance in April since late 2022, ahead of an interest rate decision by the Federal Reserve later and key U.S. labour market data. Bitcoin was last down 3.8% at $57,481, its lowest since late February, while losses in ether were more modest, down 2.6% at $2,884 at its weakest since mid-April. The Fed is not expected to make any changes to interest rates later, but the view is taking root among investors that the central bank may not cut rates at all this year, delivering a blow to interest rate-sensitive assets such as cryptocurrencies, emerging market stocks and bonds or even commodities.

  • Goldman Sachs revamps "high-quality" stock picks list

    Here are its favorite quality stocks.

  • Why I Just Bought More of This Magnificent 5.7%-Yielding Dividend Stock (and Why I'll Continue Buying in May)

    I've been buying shares of Realty Income hand over fist this year.

  • Super Micro misses quarterly revenue estimates as inventory up, shares down 10%

    (Reuters) -Artificial intelligence server maker Super Micro Computer reported third-quarter revenue below estimates on Tuesday, hurt by a shortage of some crucial components and questions over the profitability of a new line of servers. Shares of Super Micro, which have more than tripled in value so far this year, were down 14% in trading after the bell. The San Jose, California-based company, which builds powerful AI servers with chips from Nvidia, Advanced Micro Devices and others, forecast fourth-quarter revenue above estimates as it expects steady demand.