Are Strong Financial Prospects The Force That Is Driving The Momentum In Koncar - distributivni i specijalni transformatori d.d.'s ZGSE:KODT) Stock?

Koncar - distributivni i specijalni transformatori d.d's (ZGSE:KODT) stock is up by a considerable 8.6% over the past week. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study Koncar - distributivni i specijalni transformatori d.d's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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 Koncar - distributivni i specijalni transformatori d.d is:

48% = €118m ÷ €247m (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.48 in profit.

Check out our latest analysis for Koncar - distributivni i specijalni transformatori d.d

What Is The Relationship Between ROE And Earnings Growth?

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

Koncar - distributivni i specijalni transformatori d.d's Earnings Growth And 48% ROE

Firstly, we acknowledge that Koncar - distributivni i specijalni transformatori d.d has a significantly high ROE. Secondly, even when compared to the industry average of 14% the company's ROE is quite impressive. As a result, Koncar - distributivni i specijalni transformatori d.d's exceptional 55% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that Koncar - distributivni i specijalni transformatori d.d's growth is quite high when compared to the industry average growth of 19% in the same period, which is great to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Koncar - distributivni i specijalni transformatori d.d is trading on a high P/E or a low P/E , relative to its industry.

Is Koncar - distributivni i specijalni transformatori d.d Making Efficient Use Of Its Profits?

Koncar - distributivni i specijalni transformatori d.d's three-year median payout ratio is a pretty moderate 30%, meaning the company retains 70% of its income. So it seems that Koncar - distributivni i specijalni transformatori d.d is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Besides, Koncar - distributivni i specijalni transformatori d.d has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 50% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 37%) over the same period.

Summary

Overall, we are quite pleased with Koncar - distributivni i specijalni transformatori d.d's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth.

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.