Recent Share Performance of Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) Looks Decent – Can Strong Fundamentals Be the Reason?

Most readers will already know that shares of Crompton Greaves Consumer Electricals (NSE:CROMPTON) are up 4.2% over the past month. Given its impressive performance, we decided to study the company’s key financial indicators, as a company’s long-term fundamentals usually dictate market outcomes. In particular, we’ll be paying attention to the ROE of Crompton Greaves Consumer Electricals today.

ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In simple terms, it is used to assess the profitability of a company in relation to its equity.

Check out our latest analysis for Crompton Greaves Consumer Electricals

How is ROE calculated?

the return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for Crompton Greaves Consumer Electricals is:

32% = ₹6.5 billion ÷ ₹21 billion (based on trailing 12 months to September 2021).

The “yield” is the amount earned after tax over the last twelve months. Another way to think about this is that for every ₹1 worth of equity, the company was able to make a profit of ₹0.32.

What is the relationship between ROE and earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.

Crompton Greaves Consumer Electricals profit growth and 32% ROE

For starters, Crompton Greaves Consumer Electricals has a pretty high ROE, which is interesting. Additionally, the company’s ROE is above the industry average of 11%, which is quite remarkable. This likely paved the way for the modest 18% net income growth seen by Crompton Greaves Consumer Electricals over the past five years. growth

In a next step, we compared the growth of Crompton Greaves Consumer Electricals net income with the industry, and fortunately, we found that the growth observed by the company is higher than the industry average growth of 7, 5%.

NSEI: CROMPTON Past Earnings Growth January 19, 2022

Earnings growth is an important metric to consider when evaluating a stock. 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 then helps them determine if the stock is positioned for a bright or bleak future. If you’re wondering about the valuation of Crompton Greaves Consumer Electricals, check out this indicator of its price/earnings ratio, relative to its sector.

Does Crompton Greaves Consumer Electricals use its profits efficiently?

Crompton Greaves Consumer Electricals has a healthy combination of a moderate three-year median payout ratio of 35% (or a 65% retention rate) and respectable earnings growth, as seen above , which means that the company has been efficient. the use of its profits.

In addition, Crompton Greaves Consumer Electricals paid dividends over a five-year period. This shows that the company is committed to sharing profits with its shareholders. Looking at current analyst consensus data, we can see that the company’s future payout ratio is expected to reach 47% over the next three years. However, the company’s ROE is not expected to change much despite the higher expected payout ratio.

Conclusion

Overall, we believe the performance of Crompton Greaves Consumer Electricals has been quite good. In particular, we appreciate the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive earnings growth. The latest forecasts from industry analysts show that the company should maintain its current growth rate. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.

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.

About Ian Crawford

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