Does its finances have a role to play in Vaxtex Cotfab Limited’s (NSE:VCL) recent stock boost?

Most readers will already know that shares of Vaxtex Cotfab (NSE:VCL) are up a significant 68% over the past three months. We wonder if and what role company finances play in this price change, as a company’s long-term fundamentals usually dictate market outcomes. Specifically, we decided to study the ROE of Vaxtex Cotfab in this article.

Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In other words, it reveals the company’s success in turning shareholders’ investments into profits.

See our latest analysis for Vaxtex Cotfab

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 Vaxtex Cotfab is:

14% = ₹15 million ÷ ₹104 million (based on the last twelve months to March 2022).

“Yield” is the income the business has earned over the past year. This therefore means that for every ₹1 of its shareholder’s investment, the company generates a profit of ₹0.14.

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.

Vaxtex Cotfab profit growth and 14% ROE

At first glance, Vaxtex Cotfab’s ROE does not look very promising. However, since the company’s ROE is similar to the industry average ROE of 12%, we can spare it some thought. When it comes to Vaxtex Cotfab’s outstanding 33% net income growth over five years in particular, we are definitely impressed. Given the moderately low ROE, it is quite possible that other aspects positively influence the company’s earnings growth. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio.

We then compared Vaxtex Cotfab’s net income growth with the industry and we are happy to see that the company’s growth figure is higher compared to the industry which has a growth rate of 12% in during the same period.

NSEI:VCL Prior Earnings Growth May 8, 2022

Earnings growth is an important factor in stock valuation. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or ominous. Is Vaxtex Cotfab fairly valued compared to other companies? These 3 assessment metrics might help you decide.

Does Vaxtex Cotfab effectively reinvest its profits?

Vaxtex Cotfab does not pay any dividends to its shareholders, which means that the company has reinvested all of its profits back into the business. This is probably what explains the strong earnings growth discussed above.

Summary

All in all, it seems that Vaxtex Cotfab has positive aspects for its business. With a high reinvestment rate, albeit at a low ROE, the company managed to see considerable growth in earnings. While we wouldn’t completely dismiss the business, what we would do is try to figure out how risky the business is to make a more informed decision about the business. Our risk dashboard would have the 3 risks we identified for Vaxtex Cotfab.

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.

Comments are closed.