Is Software Mansion S.A.'s (WSE:SWM) Latest Stock Performance A Reflection Of Its Financial Health?

Software Mansion (WSE:SWM) has had a great run on the share market with its stock up by a significant 42% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Software Mansion'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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 Software Mansion is:

56% = zł31m ÷ zł54m (Based on the trailing twelve months to March 2025).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each PLN1 of shareholders' capital it has, the company made PLN0.56 in profit.

View our latest analysis for Software Mansion

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. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Software Mansion's Earnings Growth And 56% ROE

First thing first, we like that Software Mansion has an impressive ROE. Secondly, even when compared to the industry average of 15% the company's ROE is quite impressive. As a result, Software Mansion's exceptional 29% net income growth seen over the past five years, doesn't come as a surprise.

We then compared Software Mansion's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 14% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. 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. Has the market priced in the future outlook for SWM? You can find out in our latest intrinsic value infographic research report

Is Software Mansion Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 58% (implying that it keeps only 42% of profits) for Software Mansion suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

While Software Mansion has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Summary

In total, we are pretty happy with Software Mansion's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of Software Mansion's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.