Is Ratnaveer Precision Engineering Limited's (NSE:RATNAVEER) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Ratnaveer Precision Engineering's (NSE:RATNAVEER) stock is up by a considerable 11% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Ratnaveer Precision Engineering's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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 Ratnaveer Precision Engineering is:

13% = ₹493m ÷ ₹3.7b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.13 in profit.

Check out our latest analysis for Ratnaveer Precision Engineering

Why Is ROE Important For 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.

Ratnaveer Precision Engineering's Earnings Growth And 13% ROE

When you first look at it, Ratnaveer Precision Engineering's ROE doesn't look that attractive. However, the fact that the its ROE is quite higher to the industry average of 10% doesn't go unnoticed by us. Even more so after seeing Ratnaveer Precision Engineering's exceptional 34% net income growth over the past five years. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Hence, there might be some other aspects that are causing earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

Next, on comparing with the industry net income growth, we found that Ratnaveer Precision Engineering's growth is quite high when compared to the industry average growth of 25% in the same period, which is great to see.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Ratnaveer Precision Engineering is trading on a high P/E or a low P/E, relative to its industry.

Is Ratnaveer Precision Engineering Efficiently Re-investing Its Profits?

Given that Ratnaveer Precision Engineering doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

On the whole, we feel that Ratnaveer Precision Engineering's performance has been quite good. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate. 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. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. To know the 1 risk we have identified for Ratnaveer Precision Engineering visit our risks dashboard for free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.