Most readers would already know that Industries Qatar Q.P.S.C’s (DSM:IQCD) stock increased by 3.3% over the past month. We wonder if and what role the company’s financials play in that price change as a company’s long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Industries Qatar Q.P.S.C’s ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. Put another way, it reveals the company’s success at turning shareholder investments into profits.

Check out our latest analysis for Industries Qatar Q.P.S.C

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Industries Qatar Q.P.S.C is:

13% = ر.ق5.0b ÷ ر.ق38b (Based on the trailing twelve months to September 2024).

The ‘return’ refers to a company’s earnings over the last year. Another way to think of that is that for every QAR1 worth of equity, the company was able to earn QAR0.13 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Industries Qatar Q.P.S.C’s Earnings Growth And 13% ROE

As you can see, Industries Qatar Q.P.S.C’s ROE looks pretty weak. However, the fact that it is higher than the industry average of 8.0% makes us a bit more interested. Particularly, the modest 16% net income growth seen by Industries Qatar Q.P.S.C over the past five years is a positive. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. For instance, the company has a low payout ratio or is being managed efficiently

Next, on comparing Industries Qatar Q.P.S.C’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 16% over the last few years.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock’s future looks promising or ominous. Has the market priced in the future outlook for IQCD? You can find out in our latest intrinsic value infographic research report.

Is Industries Qatar Q.P.S.C Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 91% (or a retention ratio of 8.5%) for Industries Qatar Q.P.S.C suggests that the company’s growth wasn’t really hampered despite it returning most of its income to its shareholders.

Besides, Industries Qatar Q.P.S.C has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 99%. Therefore, the company’s future ROE is also not expected to change by much with analysts predicting an ROE of 13%.

Summary

Overall, we feel that Industries Qatar Q.P.S.C certainly does have some positive factors to consider. Specifically, its decent ROE which likely contributed to the growth in earnings. Bear in mind, the company reinvests little to none of its profits, which means that investors aren’t necessarily reaping the full benefits of the decent rate of return. Having said that, the company’s earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.