Indo Borax & Chemicals Limited's (NSE:INDOBORAX) Stock Is Going Strong: Have Financials A Role To Play?

Most readers would already be aware that Indo Borax & Chemicals' (NSE:INDOBORAX) stock increased significantly by 12% over the past month. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Indo Borax & Chemicals' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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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 Indo Borax & Chemicals is:

12% = ₹387m ÷ ₹3.4b (Based on the trailing twelve months to June 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 ₹0.12.

View our latest analysis for Indo Borax & Chemicals

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 Indo Borax & Chemicals' Earnings Growth And 12% ROE

On the face of it, Indo Borax & Chemicals' ROE is not much to talk about. Yet, a closer study shows that the company's ROE is similar to the industry average of 10.0%. On the other hand, Indo Borax & Chemicals reported a moderate 9.1% net income growth over the past five years. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's 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 Indo Borax & Chemicals' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 9.8% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Indo Borax & Chemicals is trading on a high P/E or a low P/E, relative to its industry.

Is Indo Borax & Chemicals Making Efficient Use Of Its Profits?

In Indo Borax & Chemicals' case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 7.5% (or a retention ratio of 92%), which suggests that the company is investing most of its profits to grow its business.

Moreover, Indo Borax & Chemicals is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Summary

On the whole, we do feel that Indo Borax & Chemicals has some positive attributes. 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 2 risks we have identified for Indo Borax & Chemicals 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.