Arty Industries (NSE:AARTIIND) has had a rough three months with its share price down 16%. But if you look closely, given how the market usually rewards companies with strong financial health, that strong financial position means that stocks can go up in the long run. You may find that there may be Especially today I would like to pay attention to his ROE of Artie Kogyo.
ROE or Return on Equity is a useful tool for evaluating how effectively a company is able to generate returns on the investment it receives from its shareholders. Simply put, it is used to assess a company’s profitability in relation to its equity capital.
See the latest analysis from Aarti Industries
How to calculate return on equity
ROE can be calculated using the following formula:
Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity
Therefore, based on the above formula, Aarti Industries’ ROE is:
27% = ₹13b ÷ ₹47b (based on last 12 months to Sep 2022).
“Revenue” is the income a business earned in the last year. In other words, for every INR 1 shareholder’s equity, the company has generated a profit of INR 0.27.
Why ROE Is Important to Profit Growth
So far we have learned that ROE is a measure of a company’s profitability. Next, the company should assess how much of its earnings will be reinvested or “retained” for future growth. This will give you an idea about the company’s growth potential. Generally speaking, other things being equal, companies with high return on equity and earnings retention will have higher growth rates than companies that do not share these attributes.
Side-by-side comparison of Aarti Industries revenue growth and 27% ROE
At first glance, Aarti Industries’ ROE looks decent. Especially when compared to the industry average of 15%, the company’s ROE is very impressive. This certainly adds some context to Aarti Industries’ exceptional 31% net profit growth seen over the past five years. There may be other factors here as well. For example, the company’s management may have made some excellent strategic decisions, or the company may have a low payout percentage.
Next, we compared Aarti Industries’ net profit growth with the industry. He is pleased with the company’s high growth rate compared to the industry which showed 22% growth during the same period.
Earnings growth is a big factor in stock valuations. The next thing investors need to determine is whether expected earnings growth, or lack thereof, is already baked into the stock price. This helps determine whether the stock is positioned for a bright future or a dark future. One good indicator of expected earnings growth is the P/E ratio. This determines the price the market is willing to pay for a stock based on its earnings prospects. As such, it’s a good idea to check whether Aarti Industries is trading at a higher or lower P/E relative to its industry.
Is Aarti Industries using its profits efficiently?
Aarti Industries has a very low average payout rate of 9.9% over three years, leaving the remaining 90% to be reinvested in the business. As such, management appears to be significantly reinvesting earnings to grow the business, which is reflected in earnings growth.
Moreover, Aarti Industries has been paying dividends for at least 10 years. This demonstrates the company’s commitment to sharing profits with its shareholders. A study of the latest analyst consensus data found that the company is expected to continue paying around 9.9% of its profits over the next three years. Still, even though the company’s payout ratio isn’t expected to change much, projections suggest his ROE for Aarti Industries’ future will drop to his 15%.
Overall, I feel that Aarti Industries is performing very well. Specifically, I like that the company reinvests most of its profits at a high rate of return. Of course, this has led the company to significant revenue growth. That said, the latest industry analyst forecasts reveal that the company’s revenue growth is expected to slow.Learn more about the company’s future revenue growth projections here freedom For more information, see the company’s analyst forecasts report.
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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …