The stock of Krynica Vitamin SA (WSE:KVT) has seen strong momentum: does this require a more in-depth study of its financial prospects?

Most readers already know that Krynica Vitamin (WSE:KVT) stock has increased significantly by 14% over the past week. As most know, fundamentals are what generally guide market price movements over the long term, so we decided to take a look at key financial indicators in business today to see if they have a role to play. play in the recent price movement. In particular, we will pay attention to the ROE of Krynica Vitamin today.

Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

See our latest review for Vitamin Krynica

How is ROE calculated?

the return on equity formula is:

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

So, based on the formula above, the ROE for Vitamin Krynica is:

10% = 9.0 million zł ÷ 89 million zł (based on the last twelve months until June 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 PLN worth of equity, the company was able to make a profit of 0.10 PLN.

What is the relationship between ROE and earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. 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. 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.

Krynica Vitamin Earnings Growth and 10% ROE

At first glance, there is not much to say about the ROE of Krynica Vitamin. Yet further investigation shows that the company’s ROE is similar to the industry average of 9.0%. Additionally, we are very pleased to see that Krynica Vitamin’s net income has increased significantly at a rate of 55% over the past five years. Given the moderately low ROE, it is quite possible that other aspects positively influence the company’s earnings growth. Such as – high revenue retention or effective management in place.

We then compared the growth of Krynica Vitamin’s net income with the industry and we are happy to see that the growth figure of the company is higher compared to the industry which has a growth rate of 5.5 % over the same period.

WSE: KVT Past Earnings Growth February 10, 2022

Earnings growth is an important factor in stock valuation. 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. A good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. Thus, you may want to check whether Vitamin Krynica is trading on a high P/E or a low P/E, relative to its industry.

Does Vitamin Krynica Effectively Utilize Its Benefits?

Krynica Vitamin’s large three-year median payout ratio of 55% (where it retains only 45% of its revenue) suggests that the company has been able to achieve strong earnings growth despite the return of most of its income to shareholders.

Additionally, Krynica Vitamin has paid dividends over a six-year period, which means the company is pretty serious about sharing its profits with its shareholders.

Conclusion

All in all, it seems that Krynica Vitamin has positive aspects for its activity. That is, quite impressive revenue growth. However, low earnings retention means the company’s earnings growth could have been higher had it reinvested more of its earnings. So far, we have only had a brief discussion of corporate earnings growth. So it might be worth checking that out. free detailed graph Krynica Vitamin’s past revenue, as well as revenue and cash flow to get a deeper insight into the company’s performance.

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.

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