Fabrica de Scule Rasnov S.A.'s (BVB:FACY) Stock Is Going Strong: Have Financials A Role To Play?

Most readers would already be aware that Fabrica de Scule Rasnov's (BVB:FACY) stock increased significantly by 19% 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. In this article, we decided to focus on Fabrica de Scule Rasnov's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Fabrica de Scule Rasnov is:

6.2% = RON1.8m ÷ RON29m (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every RON1 worth of equity, the company was able to earn RON0.06 in profit.

View our latest analysis for Fabrica de Scule Rasnov

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Fabrica de Scule Rasnov's Earnings Growth And 6.2% ROE

It is quite clear that Fabrica de Scule Rasnov's ROE is rather low. A comparison with the industry shows that the company's ROE is pretty similar to the average industry ROE of 7.7%. So we are actually pleased to see that Fabrica de Scule Rasnov's net income grew at an acceptable rate of 15% over the last five years. Given the low ROE, it is likely that there could be some other aspects that are driving this growth as well. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between Fabrica de Scule Rasnov's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 16% in the same 5-year 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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Fabrica de Scule Rasnov's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Fabrica de Scule Rasnov Efficiently Re-investing Its Profits?

Fabrica de Scule Rasnov has a significant three-year median payout ratio of 59%, meaning that it is left with only 41% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Additionally, Fabrica de Scule Rasnov has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

Overall, we feel that Fabrica de Scule Rasnov certainly does have some positive factors to consider. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid 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 Fabrica de Scule Rasnov'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.