Aussie Broadband (ASX:ABB) has had a tough three months, with its share price down 12%. But if you pay close attention, you might realize that strong financials could mean the stock could see a long-term increase in value, given how markets typically reward companies with good financial health. In particular, today we’ll focus on Aussie Broadband’s ROE.
Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
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The the formula for return on equity is:
Return on equity = Net profit (from continuing operations) ÷ Equity
So based on the formula above, the ROE for Aussie Broadband is:
6.0% = $33 million ÷ $545 million (Based on trailing twelve months to June 2025).
“Profitability” refers to a company’s earnings over the past year. One way to conceptualize this is that for every A$1 of shareholder equity it has, the company has made a profit of A$0.06.
See our latest review for Aussie Broadband
So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of these profits the company reinvests or “retains,” and how efficiently it does so, we can then gauge a company’s earnings growth potential. All else being equal, companies that have both a higher return on equity and higher earnings retention are usually those that have a higher growth rate compared to companies that do not share the same characteristics.
In reality, Aussie Broadband’s ROE isn’t much to talk about. Although a closer study reveals that the company’s ROE is higher than the industry average of 3.8% which we certainly cannot overlook. Even more so after seeing Aussie Broadband’s exceptional 60% net income growth over the past five years. Note that the company has a moderately low ROE. It’s just that the ROE of the industry is lower. Therefore, the increase in earnings could also be the result of other factors. For example, it is possible that the wider industry is going through a phase of high growth or that the company has a low payout ratio.
We then compared Aussie Broadband’s net income growth with the industry and we are pleased to see that the company’s growth figure is higher compared to the industry which has a growth rate of 10% over the same 5-year period.
ASX:ABB Earnings growth past 27 December 2025
Earnings growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has priced in the increase (or decrease) in the company’s expected earnings. This then helps them determine whether the stock is positioned for a bright or bleak future. Is Aussie Broadband fairly priced compared to other companies? These 3 evaluation measures can help you decide.
The average three-year payout ratio for Aussie Broadband is 49%, which is moderately low. The company retains the remaining 51%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Aussie Broadband is reinvesting its earnings effectively.
As well as a rise in earnings, Aussie Broadband has only recently started paying dividends. It is quite possible that the company wanted to impress its shareholders. Our latest analyst data shows that the company’s forward payout ratio is expected to fall to 32% over the next three years. Consequently, the expected decrease in the payout ratio explains the expected increase in the company’s ROE to 14% over the same period.
Overall, we think Aussie Broadband’s performance has been quite good. Specifically, we like that it has reinvested a large portion of its profits at a moderate rate of return, resulting in earnings expansion. That said, the company’s earnings growth is expected to slow, as predicted by current analyst estimates. Are these analyst expectations based on broad industry expectations or company fundamentals? Click here to be taken to our analysts’ forecast page for the company.
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This article from Simply Wall St is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology, and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. We aim to provide you with focused long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality materials. Simply Wall St has no position in any of the stocks mentioned.
