Do Its Financials Have Any Role To Play In Driving Aqaseem Factory for Chemicals and Plastics Co.'s (TADAWUL:9539) Stock Up Recently?

Aqaseem Factory for Chemicals and Plastics (TADAWUL:9539) has had a great run on the share market with its stock up by a significant 73% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Aqaseem Factory for Chemicals and Plastics' ROE today.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Aqaseem Factory for Chemicals and Plastics

How Do You 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 Aqaseem Factory for Chemicals and Plastics is:

15% = ر.س9.4m ÷ ر.س61m (Based on the trailing twelve months to June 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.15.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

A Side By Side comparison of Aqaseem Factory for Chemicals and Plastics' Earnings Growth And 15% ROE

It is hard to argue that Aqaseem Factory for Chemicals and Plastics' ROE is much good in and of itself. However, the fact that it is higher than the industry average of 4.3% makes us a bit more interested. Especially considering that Aqaseem Factory for Chemicals and Plastics has seen a decent 16% net income growth seen over the past five years. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. Such as high earnings retention or an efficient management in place.

We then compared Aqaseem Factory for Chemicals and Plastics' 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 8.3% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Aqaseem Factory for Chemicals and Plastics fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Aqaseem Factory for Chemicals and Plastics Using Its Retained Earnings Effectively?

While Aqaseem Factory for Chemicals and Plastics has a three-year median payout ratio of 51% (which means it retains 49% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Along with seeing a growth in earnings, Aqaseem Factory for Chemicals and Plastics only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Summary

Overall, we feel that Aqaseem Factory for Chemicals and Plastics certainly does have some positive factors to consider. Especially the substantial growth in earnings backed by a decent ROE. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. 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 Aqaseem Factory for Chemicals and Plastics' 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.