Sapphire Foods India (NSE: SAPHIRE) has had a strong run in the equity market with a significant 16% increase in its shares over the past three months. Since stock prices are usually aligned with a company’s financial performance over the long term, we decided to take a closer look at its financial indicators to see if they had a role to play in the recent price movement. . In this article, we have decided to focus on the ROE of Sapphire Foods India.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.
Check out our latest analysis for Sapphire Foods India
How is ROE calculated?
the ROE formula East:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Sapphire Foods India is:
1.2% = ₹58 million ÷ ₹4.8 billion (based on the last twelve months to December 2021).
The “yield” is the profit of the last twelve months. This means that for every ₹ of equity, the company generated ₹0.01 of profit.
What is the relationship between ROE and earnings growth?
We have already established that ROE serves as an effective earnings-generating indicator for a company’s future earnings. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
A side-by-side comparison of Sapphire Foods India’s earnings growth and ROE of 1.2%
It is clear that the ROE of Sapphire Foods India is rather low. Even compared to the industry average of 6.8%, the ROE figure is quite disappointing. However, the moderate net income growth of 6.6% seen by Sapphire Foods India over the past five years is definitely positive. We believe there could be other aspects that positively influence the company’s earnings growth. Such as – high revenue retention or effective management in place.
Then, comparing with the industry net income growth, we found that the growth figure reported by Sapphire Foods India compares quite favorably to the industry average, which shows a decline of 11% over the course of the same period.
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This will help them determine if the future of the title looks bright or ominous. Is Sapphire Foods India correctly rated compared to other companies? These 3 assessment metrics might help you decide.
Is Sapphire Foods India effectively reinvesting its profits?
Since Sapphire Foods India pays no dividends to its shareholders, we infer that the company has reinvested all its profits to grow its business.
All in all, it seems that Sapphire Foods India has some positive aspects of its business. Despite its low rate of return, the fact that the company reinvests a very large portion of its profits back into its business no doubt contributed to the strong growth in its profits. That said, the latest analyst forecasts show that the company will continue to see earnings expansion. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.