Looking at Deepak Nitrite (NSE:DEPAKNTR)’s recent performance, it doesn’t get you excited that the stock has fallen 10% over the past month. However, a closer look at its sound financials may make you think again. The company is noteworthy given that fundamentals usually drive long-term market outcomes. Specifically, I decided to look at his ROE for Deepak Nitrite in this article.
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. In other words, it is a rate of return that measures the rate of return on capital provided by the company’s shareholders.
See the latest analysis of Deepak Nitrite
How to calculate return on equity
of ROE formula teeth:
Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity
So based on the formula above, the ROE for Deepak Nitrite is:
25% = ₹9.2b ÷ ₹37b (based on last 12 months to Sep 2022).
“Revenue” is the income a business earned in the last year. One way he conceptualizes this is that for every INR 1 shareholder’s equity held, the company made a profit of his INR 0.25.
Why ROE Is Important to Profit Growth
It has already been established that ROE serves as an efficient profit-making metric to gauge a company’s future earnings. Based on the amount of profits the company chooses to reinvest or “retain”, the company’s ability to generate profits in the future can be assessed. Assuming everything else is equal, higher ROE and profit margins will necessarily lead to higher growth for a company compared to a company that does not have these characteristics.
Side-by-side comparison of Deepak Nitrite revenue growth and 25% ROE
First, Deepak Nitrite seems to have a decent ROE. His ROE for the company is quite impressive, especially when compared to the industry average of 15%. Perhaps as a result of this, Deepak Nitrite has been able to see an impressive net profit growth of 36% over the past five years. There may be other factors here as well. For example, the company’s dividend payout ratio is low, or it is managed efficiently.
We then compared Deepak Nitrite’s net profit growth with the industry. We are pleased to see 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. It is important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). Doing so will help establish whether the stock’s future looks promising or ominous. 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 Deepak Nitrite is trading at a higher or lower P/E relative to the industry.
Is Deepak Nitrite making good use of internal reserves?
Deepak Nitrite has a very low median 3-year payout rate of 7.9%, leaving the remaining 92% 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.
Additionally, Deepak Nitrite has been paying dividends for at least 10 years. This means the company is serious about sharing profits with its shareholders. The company’s future payout rate is expected to be around 9.2% over the next three years, according to the latest analyst data. As a result, his ROE for Deepak Nitrite is also not expected to change much. We extrapolated this from analyst estimates of his future ROE of 25%.
Conclusion
Overall, I am very happy with the performance of the Deepak Nitrite. In particular, it is great to see that the company has invested heavily in its business, has a high rate of return, and has seen a significant increase in revenue. That said, we expect the company’s revenue growth to slow, as predicted by current analyst estimates.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 …
