Is Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt.'s (BUSE:RICHTER) Stock's Recent Performance A Reflection Of Its Financial Health?

Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's (BUSE:RICHTER) stock is up by 4.2% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's ROE today.

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

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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 Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt is:

17% = Ft221b ÷ Ft1.3t (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. That means that for every HUF1 worth of shareholders' equity, the company generated HUF0.17 in profit.

Check out our latest analysis for Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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 Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's Earnings Growth And 17% ROE

To begin with, Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 14%. Probably as a result of this, Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt was able to see a decent growth of 19% over the last five years.

We then compared Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 9.0% in the same 5-year period.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt Efficiently Re-investing Its Profits?

Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt has a healthy combination of a moderate three-year median payout ratio of 45% (or a retention ratio of 55%) 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, Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt 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. Accordingly, forecasts suggest that Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's future ROE will be 18% which is again, similar to the current ROE.

Summary

Overall, we are quite pleased with Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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. 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.