Is Koncar - distributivni i specijalni transformatori d.d.'s (ZGSE:KODT) Latest Stock Performance A Reflection Of Its Financial Health?

Koncar - distributivni i specijalni transformatori d.d's (ZGSE:KODT) stock is up by a considerable 18% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Koncar - distributivni i specijalni transformatori d.d's ROE.

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.

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

How Do You Calculate Return On Equity?

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:

15% = Kn57m ÷ Kn374m (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every HRK1 worth of equity, the company was able to earn HRK0.15 in profit.

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. 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.

Koncar - distributivni i specijalni transformatori d.d's Earnings Growth And 15% ROE

To start with, Koncar - distributivni i specijalni transformatori d.d's ROE looks acceptable. On comparing with the average industry ROE of 10% the company's ROE looks pretty remarkable. This certainly adds some context to Koncar - distributivni i specijalni transformatori d.d's decent 13% net income growth seen over the past five years.

As a next step, we compared Koncar - distributivni i specijalni transformatori d.d's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 7.1%.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is Koncar - distributivni i specijalni transformatori d.d fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Koncar - distributivni i specijalni transformatori d.d Efficiently Re-investing Its Profits?

With a three-year median payout ratio of 40% (implying that the company retains 60% of its profits), it seems that Koncar - distributivni i specijalni transformatori d.d is reinvesting efficiently in a way that it sees respectable amount growth in its earnings 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 is expected to keep paying out approximately 38% of its profits over the next three years. Still, forecasts suggest that Koncar - distributivni i specijalni transformatori d.d's future ROE will drop to 12% even though the the company's payout ratio is not expected to change by much.

Conclusion

In total, we are pretty happy 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. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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. 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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