Ecos (India) Mobility & Hospitality Limited's (NSE:ECOSMOBLTY) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Ecos (India) Mobility & Hospitality's (NSE:ECOSMOBLTY) stock is up by a considerable 13% over the past week. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Ecos (India) Mobility & Hospitality's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To 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 Ecos (India) Mobility & Hospitality is:

31% = ₹600m ÷ ₹1.9b (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.31 in profit.

View our latest analysis for Ecos (India) Mobility & Hospitality

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. 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.

Ecos (India) Mobility & Hospitality's Earnings Growth And 31% ROE

To begin with, Ecos (India) Mobility & Hospitality has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 14% also doesn't go unnoticed by us. Under the circumstances, Ecos (India) Mobility & Hospitality's considerable five year net income growth of 41% was to be expected.

As a next step, we compared Ecos (India) Mobility & Hospitality's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 36% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Ecos (India) Mobility & Hospitality is trading on a high P/E or a low P/E, relative to its industry.

Is Ecos (India) Mobility & Hospitality Making Efficient Use Of Its Profits?

Ecos (India) Mobility & Hospitality doesn't pay any regular dividends to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Summary

In total, we are pretty happy with Ecos (India) Mobility & Hospitality's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial 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.