Is Bombay Metrics Supply Chain Limited's (NSE:BMETRICS) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Most readers would already be aware that Bombay Metrics Supply Chain's (NSE:BMETRICS) stock increased significantly by 15% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Bombay Metrics Supply Chain's ROE in this article.

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

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How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Bombay Metrics Supply Chain is:

23% = ₹45m ÷ ₹192m (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.23 in profit.

See our latest analysis for Bombay Metrics Supply Chain

What Has ROE Got To Do With 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. 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.

Bombay Metrics Supply Chain's Earnings Growth And 23% ROE

To begin with, Bombay Metrics Supply Chain seems to have a respectable ROE. Especially when compared to the industry average of 11% the company's ROE looks pretty impressive. This certainly adds some context to Bombay Metrics Supply Chain's exceptional 28% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Bombay Metrics Supply Chain's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 25% in the same period.

Earnings growth is a huge factor in stock valuation. 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. If you're wondering about Bombay Metrics Supply Chain's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Bombay Metrics Supply Chain Making Efficient Use Of Its Profits?

Bombay Metrics Supply Chain has a really low three-year median payout ratio of 9.0%, meaning that it has the remaining 91% left over to reinvest into its business. So it looks like Bombay Metrics Supply Chain is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Bombay Metrics Supply Chain is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend.

Conclusion

In total, we are pretty happy with Bombay Metrics Supply Chain's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. Our risks dashboard would have the 5 risks we have identified for Bombay Metrics Supply Chain.

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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.