Can INA-Industrija nafte, d.d. (ZGSE:INA) Performance Keep Up Given Its Mixed Bag Of Fundamentals?

INA-Industrija nafte d.d's (ZGSE:INA) stock up by 8.0% over the past three months. Given that the stock prices usually follow long-term business performance, we wonder if the company's mixed financials could have any adverse effect on its current price price movement Specifically, we decided to study INA-Industrija nafte d.d's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for INA-Industrija nafte d.d

How Do You Calculate Return On Equity?

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 INA-Industrija nafte d.d is:

2.5% = €39m ÷ €1.5b (Based on the trailing twelve months to September 2023).

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 €0.03 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.

INA-Industrija nafte d.d's Earnings Growth And 2.5% ROE

As you can see, INA-Industrija nafte d.d's ROE looks pretty weak. Not just that, even compared to the industry average of 16%, the company's ROE is entirely unremarkable. Although, we can see that INA-Industrija nafte d.d saw a modest net income growth of 18% over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared INA-Industrija nafte d.d's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 24% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is INA-Industrija nafte d.d fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is INA-Industrija nafte d.d Making Efficient Use Of Its Profits?

While INA-Industrija nafte d.d has a three-year median payout ratio of 76% (which means it retains 24% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Additionally, INA-Industrija nafte d.d has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, we're a bit ambivalent about INA-Industrija nafte d.d's performance. Although the company has shown a fair bit of growth in earnings, the reinvestment rate is low. Meaning, the earnings growth number could have been significantly higher had the company been retaining more of its profits and reinvesting that at a higher rate of return. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into INA-Industrija nafte d.d's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.