Are Poor Financial Prospects Dragging Down Compañía Cervecerías Unidas S.A. (SNSE:CCU Stock?

Compañía Cervecerías Unidas (SNSE:CCU) has had a rough week with its share price down 3.7%. We decided to study the company's financials to determine if the downtrend will continue as the long-term performance of a company usually dictates market outcomes. Particularly, we will be paying attention to Compañía Cervecerías Unidas' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Compañía Cervecerías Unidas is:

9.4% = CL$153b ÷ CL$1.6t (Based on the trailing twelve months to September 2025).

The 'return' refers to a company's earnings over the last year. That means that for every CLP1 worth of shareholders' equity, the company generated CLP0.09 in profit.

View our latest analysis for Compañía Cervecerías Unidas

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Compañía Cervecerías Unidas' Earnings Growth And 9.4% ROE

At first glance, Compañía Cervecerías Unidas' ROE doesn't look very promising. However, given that the company's ROE is similar to the average industry ROE of 9.3%, we may spare it some thought. However, Compañía Cervecerías Unidas has seen a flattish net income growth over the past five years, which is not saying much. Remember, the company's ROE is not particularly great to begin with. Hence, this provides some context to the flat earnings growth seen by the company.

We then compared Compañía Cervecerías Unidas' performance with the industry and found that the company has shrunk its earnings at a slower rate than the industry earnings which has seen its earnings shrink by 3.2% in the same 5-year period. This does appease the negative sentiment around the company to a certain extent.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Compañía Cervecerías Unidas''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Compañía Cervecerías Unidas Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 51% (meaning, the company retains only 49% of profits) for Compañía Cervecerías Unidas suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

Moreover, Compañía Cervecerías Unidas has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 49%. Accordingly, forecasts suggest that Compañía Cervecerías Unidas' future ROE will be 9.9% which is again, similar to the current ROE.

Conclusion

In total, we would have a hard think before deciding on any investment action concerning Compañía Cervecerías Unidas. As a result of its low ROE and lack of much reinvestment into the business, the company has seen a disappointing earnings growth rate. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.