Silgo Retail Limited (NSE:SILGO) stock has seen strong momentum: does this call for further study of its financial outlook?
Silgo Retail (NSE:SILGO) has had a great run in the equity market with a significant 11% increase in its shares over the past week. Since stock prices are usually aligned with a company’s financial performance over the long term, we decided to take a closer look at its financial indicators to see if they had a role to play in the recent price movement. . In this article, we decided to focus on the ROE of Silgo Retail.
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 simple terms, it is used to assess the profitability of a company in relation to its equity.
Discover our latest analysis for Silgo Retail
How do you calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Silgo Retail is:
9.4% = ₹25m ÷ ₹271m (based on trailing twelve months to Dec 2021).
“Yield” refers to a company’s earnings over the past year. This therefore means that for every ₹1 of its shareholder’s investment, the company generates a profit of ₹0.09.
What is the relationship between ROE and earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. 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. 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.
Silgo Retail profit growth and ROE of 9.4%
At first glance, Silgo Retail’s ROE does not look very promising. Then, compared to the industry average ROE of 12%, the company’s ROE leaves us even less excited. Despite this, Silgo Retail has been able to significantly increase its net profit, at a rate of 26% over the past five years. Therefore, there could be other reasons behind this growth. For example, the business has a low payout ratio or is efficiently managed.
As a next step, we compared Silgo Retail’s net income growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 12%.
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 Silgo Retail correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Does Silgo Retail make effective use of its retained earnings?
Silgo Retail currently pays no dividends, which essentially means that it has reinvested all of its profits back into the business. This certainly contributes to the high earnings growth number we discussed above.
All in all, it seems that Silgo Retail has positive aspects for its business. Despite its low rate of return, the fact that the company reinvests a very large portion of its profits back into its business no doubt contributed to the strong growth in its profits. 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 Silgo Retail.
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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.