The stock of DCM Nouvelle (NSE: DCMNVL) has risen considerably by 60% in the past three months. 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 results. In particular, we will pay particular attention to the ROE of DCM Nouvelle today.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In simpler terms, it measures a company’s profitability relative to equity.
See our latest review for DCM Nouvelle
How to calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, DCM Nouvelle’s ROE is:
36% = ₹ 664m ÷ ₹ 1.8b (Based on the last twelve months up to June 2021).
“Return” refers to a company’s profits over the past year. Another way to look at this is that for every 1 value of equity, the company was able to make 0.36 profit.
Why is ROE important for profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. We now need to assess how much profit the business is reinvesting or “holding back” for future growth, which then gives us an idea of the growth potential of the business. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.
A side-by-side comparison of DCM Nouvelle’s 36% profit growth and ROE
For starters, DCM Nouvelle has a fairly high ROE which is interesting. Secondly, a comparison with the industry’s reported average ROE of 9.0% also does not go unnoticed for us. As a result, DCM Nouvelle’s exceptional net income growth of 29% over the past five years is no surprise.
We then compared the net profit growth of DCM Nouvelle with the industry and we are happy to see that the growth number of the company is higher than that of the industry which has a growth rate of 1.1%. over the same period.
Profit growth is an important metric to consider when valuing a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. In doing so, he will have an idea if the action is heading for clear blue waters or swampy waters ahead. Is DCM Nouvelle just valued compared to other companies? These 3 evaluation measures could help you decide.
Is DCM Nouvelle using its retained earnings effectively?
DCM Nouvelle does not pay any dividends to its shareholders, which means that the company has reinvested all of its profits in the business. This is probably what explains the high number of profit growth discussed above.
All in all, we are quite satisfied with the performance of DCM Nouvelle. Specifically, we like the fact that the company reinvests a large portion of its profits at a high rate of return. This of course allowed the company to experience substantial growth in profits. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. Let’s not forget that trading risk is also one of the factors that affect the stock price. So this is also an important area that investors should pay attention to before making a decision on a business. To find out about the 3 risks that we have identified for DCM Nouvelle, visit our risk dashboard free of charge.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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