Can Mixed Fundamentals Have A Negative Impact on QMS Medical Allied Services Limited (NSE:QMSMEDI) Current Share Price Momentum?

QMS Medical Allied Services (NSE:QMSMEDI) has had a great run on the share market with its stock up by a significant 11% over the last week. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Particularly, we will be paying attention to QMS Medical Allied Services' ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

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 QMS Medical Allied Services is:

12% = ₹116m ÷ ₹1.0b (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.12 in profit.

See our latest analysis for QMS Medical Allied Services

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. 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.

A Side By Side comparison of QMS Medical Allied Services' Earnings Growth And 12% ROE

At first glance, QMS Medical Allied Services' ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 12%. However, QMS Medical Allied Services has seen a flattish net income growth over the past five years, which is not saying much. Remember, the company's ROE is not particularly great to begin with. Hence, this provides some context to the flat earnings growth seen by the company.

Next, on comparing with the industry net income growth, we found that QMS Medical Allied Services' reported growth was lower than the industry growth of 23% over the last few years, 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). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about QMS Medical Allied Services''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is QMS Medical Allied Services Making Efficient Use Of Its Profits?

QMS Medical Allied Services' low three-year median payout ratio of 9.9%, (meaning the company retains90% of profits) should mean that the company is retaining most of its earnings and consequently, should see higher growth than it has reported.

In addition, QMS Medical Allied Services only recently started paying a dividend so the management must have decided the shareholders prefer dividends over earnings growth.

Conclusion

Overall, we have mixed feelings about QMS Medical Allied Services. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Up till now, we've only made a short study of the company's growth data. You can do your own research on QMS Medical Allied Services and see how it has performed in the past by looking at this FREE detailed graph 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.