Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A.'s (WSE:TLG) Stock Is Going Strong: Have Financials A Role To Play?

Most readers would already be aware that Przedsiebiorstwa Telekomunikacyjnego TELGAM's (WSE:TLG) stock increased significantly by 10% over the past week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Przedsiebiorstwa Telekomunikacyjnego TELGAM's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Przedsiebiorstwa Telekomunikacyjnego TELGAM

How Do You 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 Przedsiebiorstwa Telekomunikacyjnego TELGAM is:

5.7% = zł397k ÷ zł7.0m (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every PLN1 worth of equity, the company was able to earn PLN0.06 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Przedsiebiorstwa Telekomunikacyjnego TELGAM's Earnings Growth And 5.7% ROE

It is hard to argue that Przedsiebiorstwa Telekomunikacyjnego TELGAM's ROE is much good in and of itself. Not just that, even compared to the industry average of 13%, the company's ROE is entirely unremarkable. However, we we're pleasantly surprised to see that Przedsiebiorstwa Telekomunikacyjnego TELGAM grew its net income at a significant rate of 67% in the last five years. We reckon that there could be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Przedsiebiorstwa Telekomunikacyjnego TELGAM's growth is quite high when compared to the industry average growth of 9.6% 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). This then helps them determine if the stock is placed for a bright or bleak future. Is Przedsiebiorstwa Telekomunikacyjnego TELGAM fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Przedsiebiorstwa Telekomunikacyjnego TELGAM Making Efficient Use Of Its Profits?

Przedsiebiorstwa Telekomunikacyjnego TELGAM 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.

Conclusion

On the whole, we do feel that Przedsiebiorstwa Telekomunikacyjnego TELGAM has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 4 risks we have identified for Przedsiebiorstwa Telekomunikacyjnego TELGAM by visiting our risks dashboard for free on our platform here.

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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.