Are Strong Financial Prospects The Force That Is Driving The Momentum In Kino Polska TV Spolka Akcyjna's WSE:KPL) Stock?

Most readers would already be aware that Kino Polska TV Spolka Akcyjna's (WSE:KPL) stock increased significantly by 39% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Kino Polska TV Spolka Akcyjna'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Kino Polska TV Spolka Akcyjna

How To Calculate Return On Equity?

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 Kino Polska TV Spolka Akcyjna is:

21% = zł22m ÷ zł104m (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every PLN1 worth of equity, the company was able to earn PLN0.21 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

Kino Polska TV Spolka Akcyjna's Earnings Growth And 21% ROE

At first glance, Kino Polska TV Spolka Akcyjna seems to have a decent ROE. Especially when compared to the industry average of 15% the company's ROE looks pretty impressive. This probably laid the ground for Kino Polska TV Spolka Akcyjna's moderate 6.7% net income growth seen over the past five years.

As a next step, we compared Kino Polska TV Spolka Akcyjna'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 7.1% in the same period.

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. 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 Kino Polska TV Spolka Akcyjna's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Kino Polska TV Spolka Akcyjna Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 52% (or a retention ratio of 48%) for Kino Polska TV Spolka Akcyjna suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Kino Polska TV Spolka Akcyjna has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 40% over the next three years.

Summary

In total, we are pretty happy with Kino Polska TV Spolka Akcyjna's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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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