QLM Life & Medical Insurance Company Q.P.S.C.'s (DSM:QLMI) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

QLM Life & Medical Insurance Company Q.P.S.C (DSM:QLMI) has had a great run on the share market with its stock up by a significant 13% over the last month. 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. In this article, we decided to focus on QLM Life & Medical Insurance Company Q.P.S.C's ROE.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for QLM Life & Medical Insurance Company Q.P.S.C

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 QLM Life & Medical Insurance Company Q.P.S.C is:

16% = ر.ق93m ÷ ر.ق573m (Based on the trailing twelve months to June 2023).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every QAR1 worth of equity, the company was able to earn QAR0.16 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. 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. 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 QLM Life & Medical Insurance Company Q.P.S.C's Earnings Growth And 16% ROE

When you first look at it, QLM Life & Medical Insurance Company Q.P.S.C's ROE doesn't look that attractive. Although a closer study shows that the company's ROE is higher than the industry average of 13% which we definitely can't overlook. This probably goes some way in explaining QLM Life & Medical Insurance Company Q.P.S.C's moderate 8.2% growth over the past five years amongst other factors. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. For example, it is possible that the broader industry is going through a high growth phase, or that the company has a low payout ratio.

We then compared QLM Life & Medical Insurance Company Q.P.S.C's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 11% in the same 5-year period, which is a bit concerning.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is QLM Life & Medical Insurance Company Q.P.S.C fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is QLM Life & Medical Insurance Company Q.P.S.C Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 58% (or a retention ratio of 42%) for QLM Life & Medical Insurance Company Q.P.S.C suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

While QLM Life & Medical Insurance Company Q.P.S.C has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Summary

On the whole, we do feel that QLM Life & Medical Insurance Company Q.P.S.C has some positive attributes. True, the company has posted a respectable growth in earnings. However, the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paying out less dividends. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of QLM Life & Medical Insurance Company Q.P.S.C's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.