The Sandur Manganese & Iron Ores Limited (NSE:SANDUMA) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

It is hard to get excited after looking at Sandur Manganese & Iron Ores' (NSE:SANDUMA) recent performance, when its stock has declined 22% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Sandur Manganese & Iron Ores' 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Sandur Manganese & Iron Ores

How Do You Calculate Return On Equity?

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 Sandur Manganese & Iron Ores is:

16% = ₹3.4b ÷ ₹22b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.16.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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 Sandur Manganese & Iron Ores' Earnings Growth And 16% ROE

To begin with, Sandur Manganese & Iron Ores seems to have a respectable ROE. On comparing with the average industry ROE of 13% the company's ROE looks pretty remarkable. This certainly adds some context to Sandur Manganese & Iron Ores' decent 16% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Sandur Manganese & Iron Ores' reported growth was lower than the industry growth of 28% 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. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. 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 Sandur Manganese & Iron Ores''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Sandur Manganese & Iron Ores Making Efficient Use Of Its Profits?

In Sandur Manganese & Iron Ores' case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 2.8% (or a retention ratio of 97%), which suggests that the company is investing most of its profits to grow its business.

Besides, Sandur Manganese & Iron Ores has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with Sandur Manganese & Iron Ores' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings.

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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.