Do Its Financials Have Any Role To Play In Driving Ras Al Khaimah Co. for White Cement & Construction Materials P.S.C.'s (ADX:RAKWCT) Stock Up Recently?

Ras Al Khaimah for White Cement & Construction Materials P.S.C (ADX:RAKWCT) has had a great run on the share market with its stock up by a significant 19% over the last week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Ras Al Khaimah for White Cement & Construction Materials P.S.C's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Ras Al Khaimah for White Cement & Construction Materials P.S.C

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Ras Al Khaimah for White Cement & Construction Materials P.S.C is:

1.2% = د.إ9.4m ÷ د.إ783m (Based on the trailing twelve months to June 2023).

The 'return' is the yearly profit. So, this means that for every AED1 of its shareholder's investments, the company generates a profit of AED0.01.

What Has ROE Got To Do With 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.

Ras Al Khaimah for White Cement & Construction Materials P.S.C's Earnings Growth And 1.2% ROE

It is hard to argue that Ras Al Khaimah for White Cement & Construction Materials P.S.C's ROE is much good in and of itself. Not just that, even compared to the industry average of 7.1%, the company's ROE is entirely unremarkable. Ras Al Khaimah for White Cement & Construction Materials P.S.C was still able to see a decent net income growth of 6.6% over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then performed a comparison between Ras Al Khaimah for White Cement & Construction Materials P.S.C's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 7.7% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Ras Al Khaimah for White Cement & Construction Materials P.S.C's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Ras Al Khaimah for White Cement & Construction Materials P.S.C Efficiently Re-investing Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

On the whole, we do feel that Ras Al Khaimah for White Cement & Construction Materials P.S.C has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Ras Al Khaimah for White Cement & Construction Materials P.S.C's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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.