INA-Industrija nafte, d.d.'s (ZGSE:INA) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

INA-Industrija nafte d.d's (ZGSE:INA) stock is up by a considerable 6.3% 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 INA-Industrija nafte d.d's ROE in this article.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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

How To 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:

16% = Kn1.9b ÷ Kn12b (Based on the trailing twelve months to December 2022).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.16 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

INA-Industrija nafte d.d's Earnings Growth And 16% ROE

To start with, INA-Industrija nafte d.d's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 19%. This probably goes some way in explaining INA-Industrija nafte d.d's moderate 14% growth over the past five years amongst other factors.

Next, on comparing with the industry net income growth, we found that INA-Industrija nafte d.d's reported growth was lower than the industry growth of 18% in the same period, which is not something we like to see.

Earnings growth is an important metric to consider when valuing a stock. 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. 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 Using Its Retained Earnings Effectively?

INA-Industrija nafte d.d has a healthy combination of a moderate three-year median payout ratio of 38% (or a retention ratio of 62%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Besides, INA-Industrija nafte 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.

Conclusion

Overall, we are quite pleased with INA-Industrija nafte d.d's performance. 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 respectable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. You can see the 1 risk we have identified for INA-Industrija nafte d.d by visiting our risks dashboard for free on our platform here.

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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.