Do Its Financials Have Any Role To Play In Driving Cruzeiro do Sul Educacional S.A.'s (BVMF:CSED3) Stock Up Recently?

Cruzeiro do Sul Educacional's (BVMF:CSED3) stock is up by a considerable 15% over the past three months. 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. Particularly, we will be paying attention to Cruzeiro do Sul Educacional's 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 Is ROE Calculated?

Return on equity 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 Cruzeiro do Sul Educacional is:

13% = R$201m ÷ R$1.5b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. Another way to think of that is that for every R$1 worth of equity, the company was able to earn R$0.13 in profit.

View our latest analysis for Cruzeiro do Sul Educacional

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.

A Side By Side comparison of Cruzeiro do Sul Educacional's Earnings Growth And 13% ROE

As you can see, Cruzeiro do Sul Educacional's ROE looks pretty weak. However, when compared to the industry average of 9.2%, we do feel there's definitely more to the company. Particularly, the substantial 42% net income growth seen by Cruzeiro do Sul Educacional over the past five years is impressive . Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. Such as high earnings retention or an efficient management in place.

We then compared Cruzeiro do Sul Educacional's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 14% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Cruzeiro do Sul Educacional's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Cruzeiro do Sul Educacional Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 71% (implying that it keeps only 29% of profits) for Cruzeiro do Sul Educacional suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, Cruzeiro do Sul Educacional has paid dividends over a period of four years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 53% over the next three years. The fact that the company's ROE is expected to rise to 20% over the same period is explained by the drop in the payout ratio.

Summary

In total, it does look like Cruzeiro do Sul Educacional has some positive aspects to its business. Specifically, its respectable ROE which likely led to the considerable growth in earnings. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.