Is Newgen Software Technologies Limited’s (NSE:NEWGEN) latest stock market performance a reflection of its financial health?

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Newgen Software Technologies (NSE:NEWGEN) stock is up 13% in the past month. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. In particular, we’ll be paying close attention to Newgen Software Technologies’ ROE today.

Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In simple terms, it is used to assess the profitability of a company in relation to its equity.

Check out our latest analysis for Newgen Software Technologies

How to calculate return on equity?

The ROE formula is:

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

So, based on the above formula, the ROE for Newgen Software Technologies is:

20% = ₹1.6 billion ÷ ₹8.1 billion (based on the last twelve months to June 2022).

The “yield” is the profit of the last twelve months. One way to conceptualize this is that for every ₹1 of share capital it has, the company has made a profit of ₹0.20.

Why is ROE important for earnings growth?

We have already established that ROE serves as an effective profit-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. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.

A side-by-side comparison of Newgen Software Technologies earnings growth and 20% ROE

For starters, Newgen Software Technologies’ ROE seems acceptable. Compared to the industry average ROE of 9.9%, the company’s ROE looks quite remarkable. Probably because of this, Newgen Software Technologies has been able to see a decent 18% growth over the past five years.

As a next step, we benchmarked Newgen Software Technologies’ net income growth with the industry and found that the company has a similar growth figure compared to the industry average growth rate of 18% over the past of the same period.

NSEI: NEWGEN Past Earnings Growth August 13, 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. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Is Newgen Software Technologies correctly valued compared to other companies? These 3 assessment metrics might help you decide.

Does Newgen Software Technologies effectively reinvest its profits?

In the case of Newgen Software Technologies, its respectable earnings growth is likely due to its low three-year median payout rate of 19% (or an 81% retention rate), suggesting that the company is investing most of its profits to grow. his case.

In addition, Newgen Software Technologies paid dividends over a four-year period. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the company’s future payout ratio over the next three years is expected to be around 17%. As a result, the company’s future ROE is also not expected to change much, with analysts predicting an ROE of 19%.

Conclusion

All in all, we are quite satisfied with the performance of Newgen Software Technologies. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. Looking at current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.

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