Is Keskisuomalainen Oyj's (HEL:KSLAV) Recent Performance Tethered To Its Attractive Financial Prospects?

Keskisuomalainen Oyj's (HEL:KSLAV) stock up by 7.2% 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 Keskisuomalainen Oyj's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Keskisuomalainen Oyj

How Do You Calculate Return On Equity?

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 Keskisuomalainen Oyj is:

22% = €20m ÷ €92m (Based on the trailing twelve months to December 2020).

The 'return' refers to a company's earnings over the last year. That means that for every €1 worth of shareholders' equity, the company generated €0.22 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Keskisuomalainen Oyj's Earnings Growth And 22% ROE

To begin with, Keskisuomalainen Oyj has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 8.3% the company's ROE is quite impressive. This likely paved the way for the modest 12% net income growth seen by Keskisuomalainen Oyj over the past five years. growth

Next, on comparing Keskisuomalainen Oyj's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 12% in the same period.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is KSLAV fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Keskisuomalainen Oyj Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 66% (or a retention ratio of 34%) for Keskisuomalainen Oyj suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Keskisuomalainen Oyj has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

In total, we are pretty happy with Keskisuomalainen Oyj's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. 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. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Keskisuomalainen Oyj and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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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.
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