Are Poor Financial Prospects Dragging Down Fiskars Oyj Abp (HEL:FSKRS Stock?

Fiskars Oyj Abp (HEL:FSKRS) has had a rough three months with its share price down 4.9%. To decide if this trend could continue, we decided to look at its weak fundamentals as they shape the long-term market trends. Specifically, we decided to study Fiskars Oyj Abp's ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Fiskars Oyj Abp

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 Fiskars Oyj Abp is:

4.4% = €33m ÷ €758m (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.04 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

Fiskars Oyj Abp's Earnings Growth And 4.4% ROE

On the face of it, Fiskars Oyj Abp's ROE is not much to talk about. Next, when compared to the average industry ROE of 9.9%, the company's ROE leaves us feeling even less enthusiastic. Hence, the flat earnings seen by Fiskars Oyj Abp over the past five years could probably be the result of it having a lower ROE.

Next, on comparing with the industry net income growth, we found that Fiskars Oyj Abp's reported growth was lower than the industry growth of 3.2% over the last few years, which is not something we like to see.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is FSKRS worth today? The intrinsic value infographic in our free research report helps visualize whether FSKRS is currently mispriced by the market.

Is Fiskars Oyj Abp Efficiently Re-investing Its Profits?

With a high three-year median payout ratio of 72% (implying that the company keeps only 28% of its income) of its business to reinvest into its business), most of Fiskars Oyj Abp's profits are being paid to shareholders, which explains the absence of growth in earnings.

Moreover, Fiskars Oyj Abp has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 64%. Regardless, the future ROE for Fiskars Oyj Abp is predicted to rise to 13% despite there being not much change expected in its payout ratio.

Conclusion

On the whole, Fiskars Oyj Abp's performance is quite a big let-down. The company has seen a lack of earnings growth as a result of retaining very little profits and whatever little it does retain, is being reinvested at a very low rate of return. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.