Are Strong Financial Prospects The Force That Is Driving The Momentum In Philip Morris Operations a.d. Nis' BELEX:DINN) Stock?

Philip Morris Operations a.d. Nis' (BELEX:DINN) stock is up by a considerable 19% over the past week. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Philip Morris Operations a.d. Nis' 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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Philip Morris Operations a.d. Nis

How To Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Philip Morris Operations a.d. Nis is:

43% = дин6.5b ÷ дин15b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. So, this means that for every RSD1 of its shareholder's investments, the company generates a profit of RSD0.43.

What Has ROE Got To Do With 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. 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.

A Side By Side comparison of Philip Morris Operations a.d. Nis' Earnings Growth And 43% ROE

Firstly, we acknowledge that Philip Morris Operations a.d. Nis has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 29% also doesn't go unnoticed by us. Probably as a result of this, Philip Morris Operations a.d. Nis was able to see a decent net income growth of 9.4% over the last five years.

Next, on comparing Philip Morris Operations a.d. Nis' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 8.3% over the last few years.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Philip Morris Operations a.d. Nis''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Philip Morris Operations a.d. Nis Using Its Retained Earnings Effectively?

Philip Morris Operations a.d. Nis has a significant three-year median payout ratio of 54%, meaning that it is left with only 46% 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, Philip Morris Operations a.d. Nis has paid dividends over a period of five years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

On the whole, we feel that Philip Morris Operations a.d. Nis' performance has been quite good. 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. Up till now, we've only made a short study of the company's growth data. To gain further insights into Philip Morris Operations a.d. Nis' past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.