Is Koncar - distributivni i specijalni transformatori d.d.'s (ZGSE:KODT) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Koncar - distributivni i specijalni transformatori d.d's (ZGSE:KODT) stock is up by a considerable 9.4% over the past month. 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.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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

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 Koncar - distributivni i specijalni transformatori d.d is:

50% = €95m ÷ €189m (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.50 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. 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.

A Side By Side comparison of Koncar - distributivni i specijalni transformatori d.d's Earnings Growth And 50% ROE

First thing first, we like that Koncar - distributivni i specijalni transformatori d.d has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 13% also doesn't go unnoticed by us. So, the substantial 50% net income growth seen by Koncar - distributivni i specijalni transformatori d.d over the past five years isn't overly surprising.

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 22% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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 KODT worth today? The intrinsic value infographic in our free research report helps visualize whether KODT is currently mispriced by the market.

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

The three-year median payout ratio for Koncar - distributivni i specijalni transformatori d.d is 30%, which is moderately low. The company is retaining the remaining 70%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Koncar - distributivni i specijalni transformatori d.d is reinvesting its earnings efficiently.

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. 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 25%. Still, forecasts suggest that Koncar - distributivni i specijalni transformatori d.d's future ROE will drop to 29% even though the the company's payout ratio is not expected to change by much.

Conclusion

On the whole, we feel that Koncar - distributivni i specijalni transformatori d.d's performance has been quite good. 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 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.