Shree Tirupati Balajee FIBC Limited's (NSE:TIRUPATI) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Shree Tirupati Balajee FIBC's (NSE:TIRUPATI) stock is up by a considerable 31% over the past month. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Specifically, we decided to study Shree Tirupati Balajee FIBC's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Shree Tirupati Balajee FIBC

How To Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Shree Tirupati Balajee FIBC is:

5.9% = ₹27m ÷ ₹449m (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.06 in profit.

Why Is ROE Important For 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. 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.

Shree Tirupati Balajee FIBC's Earnings Growth And 5.9% ROE

It is quite clear that Shree Tirupati Balajee FIBC's ROE is rather low. Not just that, even compared to the industry average of 9.4%, the company's ROE is entirely unremarkable. As a result, Shree Tirupati Balajee FIBC's flat earnings over the past five years doesn't come as a surprise given its lower ROE.

We then compared Shree Tirupati Balajee FIBC's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 11% in the same period, which is a bit concerning.

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. Is Shree Tirupati Balajee FIBC fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Shree Tirupati Balajee FIBC Using Its Retained Earnings Effectively?

Summary

In total, we're a bit ambivalent about Shree Tirupati Balajee FIBC's performance. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Shree Tirupati Balajee FIBC's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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