Rana Sugars Limited (NSE:RANASUG) Shares are on a Bullish Trend: Are Strong Financials Driving the Market?
Rana Sugars Inc (NSE: RANASUG) has had a strong run in the stock market with a significant 36% rise in its shares over the past month. Given that the market rewards strong long-term financials, we wonder if this is the case in this case. Specifically, we decided to study the ROE of Rana Sugars in this article.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In simple terms, it is used to assess the profitability of a company in relation to its equity.
Check out our latest analysis for Rana Sugars
How to calculate return on equity?
the return on equity formula East:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Rana Sugars is:
33% = ₹1.4 billion ÷ ₹4.3 billion (based on the last twelve months to December 2021).
“Yield” refers to a company’s earnings over the past year. One way to conceptualize this is that for every ₹1 of share capital it has, the company has made a profit of ₹0.33.
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 those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
A side-by-side comparison of Rana Sugars’ earnings growth and 33% ROE
For starters, Rana Sugars has a pretty high ROE, which is interesting. Second, even when compared to the industry average of 11%, the company’s ROE is quite impressive. Under these circumstances, a considerable growth in net income for Rana Sugars of 58% over five years was to be expected.
As a next step, we compared Rana Sugars’ net income growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 16%.
Earnings growth is an important metric to consider when evaluating 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. This then helps them determine whether the stock is set for a bright or bleak future. Is Rana Sugars fairly priced compared to other companies? These 3 assessment metrics might help you decide.
Does Rana Sugars make effective use of its profits?
Since Rana Sugars does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.
Overall, we feel Rana Sugars’ performance was 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. If the company continues to increase its earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Not to mention that stock price results also depend on the potential risks a company may face. It is therefore important for investors to be aware of the risks associated with the business. To learn about the 3 risks we have identified for Rana Sugars, visit our Risk Dashboard for free.
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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.