Chocoladefabriken Lindt & Sprüngli AG's (VTX:LISN) Stock Been Rising: Are Strong Financials Guiding The Market?

Chocoladefabriken Lindt & Sprüngli's (VTX:LISN) stock is up by 5.1% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Chocoladefabriken Lindt & Sprüngli'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Chocoladefabriken Lindt & Sprüngli

How To 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 Chocoladefabriken Lindt & Sprüngli is:

16% = CHF685m ÷ CHF4.3b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. That means that for every CHF1 worth of shareholders' equity, the company generated CHF0.16 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus 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 "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Chocoladefabriken Lindt & Sprüngli's Earnings Growth And 16% ROE

To start with, Chocoladefabriken Lindt & Sprüngli's ROE looks acceptable. Even when compared to the industry average of 15% the company's ROE looks quite decent. Consequently, this likely laid the ground for the decent growth of 10% seen over the past five years by Chocoladefabriken Lindt & Sprüngli.

We then compared Chocoladefabriken Lindt & Sprüngli'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 2.9% 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). This then helps them determine if the stock is placed for a bright or bleak future. What is LISN worth today? The intrinsic value infographic in our free research report helps visualize whether LISN is currently mispriced by the market.

Is Chocoladefabriken Lindt & Sprüngli Making Efficient Use Of Its Profits?

Chocoladefabriken Lindt & Sprüngli has a significant three-year median payout ratio of 52%, meaning that it is left with only 48% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Besides, Chocoladefabriken Lindt & Sprüngli has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 52%. Accordingly, forecasts suggest that Chocoladefabriken Lindt & Sprüngli's future ROE will be 15% which is again, similar to the current ROE.

Conclusion

On the whole, we feel that Chocoladefabriken Lindt & Sprüngli's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.