Are Strong Financial Prospects The Force That Is Driving The Momentum In Dixon Technologies (India) Limited's NSE:DIXON) Stock?

Most readers would already be aware that Dixon Technologies (India)'s (NSE:DIXON) stock increased significantly by 14% over the past three months. 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 Dixon Technologies (India)'s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Dixon Technologies (India) is:

40% = ₹14b ÷ ₹35b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.40 in profit.

Check out our latest analysis for Dixon Technologies (India)

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Dixon Technologies (India)'s Earnings Growth And 40% ROE

Firstly, we acknowledge that Dixon Technologies (India) has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 8.7% which is quite remarkable. Under the circumstances, Dixon Technologies (India)'s considerable five year net income growth of 46% was to be expected.

We then compared Dixon Technologies (India)'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 16% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Dixon Technologies (India)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Dixon Technologies (India) Using Its Retained Earnings Effectively?

Dixon Technologies (India) has a really low three-year median payout ratio of 7.0%, meaning that it has the remaining 93% left over to reinvest into its business. So it looks like Dixon Technologies (India) is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, Dixon Technologies (India) has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 4.1% over the next three years. However, Dixon Technologies (India)'s future ROE is expected to decline to 30% despite the expected decline in its payout ratio. We infer that there could be other factors that could be steering the foreseen decline in the company's ROE.

Conclusion

On the whole, we feel that Dixon Technologies (India)'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. 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.