Ryazanenergosbyt’s (MCX:RZSB) stock is up by a considerable 13% over the past week. We wonder if and what role the company’s financials play in that price change as a company’s long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Ryazanenergosbyt’s ROE 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. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
How Is ROE Calculated?
ROE 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 Ryazanenergosbyt is:
48% = ₽454m ÷ ₽954m (Based on the trailing twelve months to March 2021).
The ‘return’ is the yearly profit. So, this means that for every RUB1 of its shareholder’s investments, the company generates a profit of RUB0.48.
Why Is ROE Important For Earnings Growth?
So far, we’ve learned that ROE is a measure of a company’s profitability. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Ryazanenergosbyt’s Earnings Growth And 48% ROE
To begin with, Ryazanenergosbyt has a pretty high ROE which is interesting. Additionally, the company’s ROE is higher compared to the industry average of 8.8% which is quite remarkable. Under the circumstances, Ryazanenergosbyt’s considerable five year net income growth of 56% was to be expected.
Next, on comparing with the industry net income growth, we found that Ryazanenergosbyt’s growth is quite high when compared to the industry average growth of 9.7% in the same period, which is great to see.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you’re wondering about Ryazanenergosbyt’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Ryazanenergosbyt Efficiently Re-investing Its Profits?
Ryazanenergosbyt’s very high three-year median payout ratio of 111% suggests that the company is paying more to its shareholders than what it is earning. Despite this, the company’s earnings grew significantly as we saw above. Having said that, the high payout ratio is definitely risky and something to keep an eye on. To know the 3 risks we have identified for Ryazanenergosbyt visit our risks dashboard for free.
Besides, Ryazanenergosbyt has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.
In total, it does look like Ryazanenergosbyt has some positive aspects to its business. Specifically, its high ROE which likely led to the growth in earnings. Bear in mind, the company reinvests little to none of its profits, which means that investors aren’t necessarily reaping the full benefits of the high rate of return. So far, we’ve only made a quick discussion around the company’s earnings growth. So it may be worth checking this free detailed graph of Ryazanenergosbyt’s past earnings, as well as revenue and cash flows to get a deeper insight into the company’s performance.
If you decide to trade Ryazanenergosbyt, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account.
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.