Is Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK S.A.'s (WSE:RMK) Latest Stock Performance A Reflection Of Its Financial Health?

Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK's (WSE:RMK) stock is up by a considerable 66% over the past three months. 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. In this article, we decided to focus on Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK's 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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK

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 Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK is:

33% = zł17m ÷ zł51m (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. That means that for every PLN1 worth of shareholders' equity, the company generated PLN0.33 in profit.

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. 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.

A Side By Side comparison of Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK's Earnings Growth And 33% ROE

To begin with, Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 12% also doesn't go unnoticed by us. Under the circumstances, Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK's considerable five year net income growth of 21% was to be expected.

Next, on comparing with the industry net income growth, we found that Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK'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. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). 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 Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK Making Efficient Use Of Its Profits?

Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK doesn't pay any dividend 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

On the whole, we feel that Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK's performance has been quite good. 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. 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 3 risks we have identified for Przedsiebiorstwo Modernizacji Urzadzen Energetycznych REMAK visit our risks dashboard for free.

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This article by Simply Wall St is general in nature. 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.
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