Is the strong financial outlook the driving force behind Jindal Poly Films Limited’s NSE: JINDALPOLY) stock?
Jindal Poly Films (NSE: JINDALPOLY) shares are up a considerable 31% 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 this article, we have decided to focus on the ROE of Jindal Poly Films.
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.
Check out our latest review for Jindal Poly Films
How do you calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE of Jindal Poly Films is:
30% = ₹ 7.9b ÷ ₹ 26b (Based on the last twelve months up to March 2021).
The “return” is the annual profit. This means that for every 1 of equity, the company generated ₹ 0.30 in profit.
Why is ROE important for profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything 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. .
Jindal Poly Films profit growth and 30% ROE
First, we recognize that Jindal Poly Films has a significantly high ROE. Second, even compared to the industry average of 14%, the company’s ROE is quite impressive. It is probably because of this that Jindal Poly Films has been able to achieve decent net income growth of 15% over the past five years.
Next, comparing Jindal Poly Films’ net income growth with the industry, we found that the reported growth of the company is similar to the industry average growth rate of 14% over the same period.
The basis for attaching value to a business is, to a large extent, related to the growth of its profits. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This then helps them determine whether the stock is set for a bright or dark future. Is Jindal Poly Films properly rated against other companies? These 3 evaluation measures could help you decide.
Is Jindal Poly Films effectively reinvesting its profits?
In the case of Jindal Poly Films, its respectable profit growth can probably be explained by its low three-year median distribution rate of 4.0% (or a retention rate of 96%), suggesting that the he business invests most of its profits to grow its business.
In addition, Jindal Poly Films has paid dividends over a period of at least ten years, which means the company is very serious about sharing its profits with its shareholders.
All in all, we are quite satisfied with the performance of Jindal Poly Films. 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. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should keep themselves informed of the risks involved before investing in a business. To know the 1 risk that we have identified for Jindal Poly Films, visit our free risk dashboard.
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This Simply Wall St article is general in nature. 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 documents. Simply Wall St has no position in the mentioned stocks.
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