Are Strong Financial Prospects The Force That Is Driving The Momentum In Ddev Plastiks Industries Limited's NSE:DDEVPLSTIK) Stock?

Ddev Plastiks Industries (NSE:DDEVPLSTIK) has had a great run on the share market with its stock up by a significant 16% over the last week. 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 Ddev Plastiks Industries' 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. 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?

ROE 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 Ddev Plastiks Industries is:

22% = ₹1.9b ÷ ₹8.3b (Based on the trailing twelve months to March 2025).

The 'return' is the profit over the last twelve months. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.22.

See our latest analysis for Ddev Plastiks Industries

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. 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 Ddev Plastiks Industries' Earnings Growth And 22% ROE

At first glance, Ddev Plastiks Industries seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 9.4%. This probably laid the ground for Ddev Plastiks Industries' significant 44% net income growth seen over the past five years. We believe that there might also 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.

Next, on comparing with the industry net income growth, we found that Ddev Plastiks Industries' growth is quite high when compared to the industry average growth of 11% in the same period, which is great to see.

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 Ddev Plastiks Industries''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Ddev Plastiks Industries Using Its Retained Earnings Effectively?

Ddev Plastiks Industries' three-year median payout ratio to shareholders is 8.5%, which is quite low. This implies that the company is retaining 91% of its profits. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Besides, Ddev Plastiks Industries has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders.

Summary

In total, we are pretty happy with Ddev Plastiks Industries' 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.

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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.