Imagicaaworld Entertainment Limited's (NSE:IMAGICAA) Stock Is Going Strong: Have Financials A Role To Play?

Imagicaaworld Entertainment's (NSE:IMAGICAA) stock is up by a considerable 12% over the past week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Imagicaaworld Entertainment's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Imagicaaworld Entertainment is:

6.3% = ₹676m ÷ ₹11b (Based on the trailing twelve months to December 2024).

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 ₹0.06 in profit.

See our latest analysis for Imagicaaworld Entertainment

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.

Imagicaaworld Entertainment's Earnings Growth And 6.3% ROE

It is hard to argue that Imagicaaworld Entertainment's ROE is much good in and of itself. Not just that, even compared to the industry average of 8.7%, the company's ROE is entirely unremarkable. Despite this, surprisingly, Imagicaaworld Entertainment saw an exceptional 54% net income growth over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then performed a comparison between Imagicaaworld Entertainment's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 48% in the same 5-year period.

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). This then helps them determine if the stock is placed for a bright or bleak future. Is Imagicaaworld Entertainment fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Imagicaaworld Entertainment Efficiently Re-investing Its Profits?

Imagicaaworld Entertainment doesn't pay any regular dividends to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Summary

In total, it does look like Imagicaaworld Entertainment has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 1 risk we have identified for Imagicaaworld Entertainment visit our risks dashboard for free.

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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.