Is KONCAR - Elektroindustrija d.d.'s (ZGSE:KOEI) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

KONCAR - Elektroindustrija d.d's (ZGSE:KOEI) stock is up by a considerable 16% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on KONCAR - Elektroindustrija 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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Is ROE Calculated?

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 KONCAR - Elektroindustrija d.d is:

27% = €215m ÷ €790m (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.27 in profit.

See our latest analysis for KONCAR - Elektroindustrija 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. 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. 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 - Elektroindustrija d.d's Earnings Growth And 27% ROE

First thing first, we like that KONCAR - Elektroindustrija d.d has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. As a result, KONCAR - Elektroindustrija d.d's exceptional 49% 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 - Elektroindustrija 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.

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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about KONCAR - Elektroindustrija d.d's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is KONCAR - Elektroindustrija d.d Making Efficient Use Of Its Profits?

KONCAR - Elektroindustrija d.d's three-year median payout ratio to shareholders is 12%, which is quite low. This implies that the company is retaining 88% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Moreover, KONCAR - Elektroindustrija d.d is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 5.8% over the next three years. Despite the lower expected payout ratio, the company's ROE is not expected to change by much.

Summary

On the whole, we feel that KONCAR - Elektroindustrija d.d's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.