It’s hard to get excited after looking at the recent performance of Southern Cross Media Group (ASX: SXL), when its stock has fallen 18% over the past three months. To decide if this trend can continue, we decided to look at its weak fundamentals as they shape long-term market trends. Specifically, we decided to study the ROE of Southern Cross Media Group in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its share capital.
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ROE can be calculated using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Stockholders’ Equity
So, based on the formula above, the ROE for Southern Cross Media Group is:
3.0% = AU$6.4m ÷ AU$212m (Based on the trailing twelve months to June 2025).
The ‘return’ is the amount earned after tax over the last twelve months. This means that for every A$1 worth of shareholder equity, the company generated A$0.03 in profit.
Check out our latest analysis for Southern Cross Media Group
So far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming that everything remains unchanged, the higher the ROE and retained earnings, the higher the growth rate of a company compared to companies that do not necessarily have these characteristics.
As you can see, Southern Cross Media Group’s ROE looks quite weak. Even compared to the industry average ROE of 4.7%, the company’s ROE is pretty dismal. Therefore, it may not be wrong to say that the decrease in five-year net income of 48% seen by Southern Cross Media Group was possibly a result of having a lower ROE. We believe that there may also be other aspects that are negatively influencing the company’s earnings prospects. Such as – maintaining low returns or poor allocation of capital.
So, as a next step, we compared Southern Cross Media Group’s performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 38% over the past few years.
ASX:SXL Past Earnings Growth to 26 January 2026
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing so, they will have an idea if the stock is headed in clear blue waters or if they should expect rejected waters. If you’re wondering about Southern Cross Media Group’s valuation, check out this measure of its price-to-earnings ratio, compared to its industry.
With an LTM (or trailing twelve month) payout ratio as high as 150%, Southern Cross Media Group’s shrinking earnings come as no surprise as the company is paying a dividend that is beyond its means. Paying a dividend beyond their means is usually not viable in the long term. To find out the two risks we have identified for Southern Cross Media Group visit our free risk dashboard.
In addition, Southern Cross Media Group has paid dividends over a period of at least ten years, which means that the company’s management is determined to pay dividends even if it means little or no growth in earnings. Existing analyst estimates suggest that the company’s future payout ratio is expected to fall to 36% over the next three years. As a result, the expected reduction in Southern Cross Media Group’s payout ratio explains the anticipated increase in the company’s future ROE to 16%, during the same period.
All in all, we would have to think hard before deciding on any investment action concerning Southern Cross Media Group. The low ROE, combined with the fact that the company is paying out almost, if not all, of its profits as dividends, has resulted in the lack or lack of growth in its earnings. As such, the latest industry analyst forecasts show that analysts are expecting to see a major improvement in the company’s earnings growth rate. To know more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.
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This article from 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 into account your goals, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not consider the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.