Are Strong Financial Prospects The Force That Is Driving The Momentum In Shree Rama Multi-Tech Limited's NSE:SHREERAMA) Stock?

Shree Rama Multi-Tech (NSE:SHREERAMA) has had a great run on the share market with its stock up by a significant 22% over the last week. 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 Shree Rama Multi-Tech's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Shree Rama Multi-Tech is:

34% = ₹564m ÷ ₹1.7b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.34 in profit.

Check out our latest analysis for Shree Rama Multi-Tech

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

Shree Rama Multi-Tech's Earnings Growth And 34% ROE

To begin with, Shree Rama Multi-Tech has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 9.5% which is quite remarkable. Under the circumstances, Shree Rama Multi-Tech's considerable five year net income growth of 63% was to be expected.

Next, on comparing with the industry net income growth, we found that Shree Rama Multi-Tech's growth is quite high when compared to the industry average growth of 14% 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. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Shree Rama Multi-Tech's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Shree Rama Multi-Tech Using Its Retained Earnings Effectively?

Shree Rama Multi-Tech doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Conclusion

On the whole, we feel that Shree Rama Multi-Tech's performance has been quite good. 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 sizeable growth in its earnings. 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. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. To know the 2 risks we have identified for Shree Rama Multi-Tech 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.