R Systems International Limited (NSE: RSYSTEMS) shares are on an uptrend: is strong financial data driving the market?
R Systems International (NSE: RSYSTEMS) shares have risen 55% in the past three months. Given that the market rewards strong, long-term financials, we wonder if this is the case in this case. In particular, we will be paying special attention to the ROE of R Systems International today.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
Check out our latest review for R Systems International
How do you calculate return on equity?
The formula for ROE is:
Return on equity = Net income (from continuing operations) Ã· Equity
Thus, based on the above formula, the ROE of R Systems International is:
28% = â¹ 1.4b Ã· â¹ 5.0b (Based on the last twelve months up to September 2021).
“Return” refers to a company’s profits over the past year. Another way to look at this is that for every 1 value of equity, the company was able to make 0.28 profit.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates 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 else 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.
R Systems International profit growth and 28% ROE
For starters, R Systems International has a pretty high ROE, which is interesting. Second, a comparison with the industry-reported average ROE of 12% doesn’t go unnoticed for us either. As a result, R Systems International’s exceptional 24% net profit growth seen over the past five years is no surprise.
Then, comparing with the growth in net income of the industry, we found that the growth of R Systems International is quite high compared to the industry average growth of 12% over the same period, which is great to see.
Profit growth is a huge factor in the valuation of stocks. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. In doing so, he will have an idea if the action is heading for clear blue waters or swampy waters ahead. If you’re wondering about R Systems International’s valuation, check out this gauge of its price / earnings ratio, relative to its industry.
Is R Systems International Using Retained Earnings Effectively?
R Systems International’s three-year median payout ratio is less than 14%, which means it retains a higher percentage (86%) of its profits. This suggests that management is reinvesting most of the profits to grow the business, as evidenced by the growth seen by the business.
In addition, R Systems International 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.
Overall, we think the performance of R Systems International has been quite good. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in significant growth in its 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. Let’s not forget that trading risk is also one of the factors that affect the stock price. So this is also an important area that investors should pay attention to before making a decision on a business. To know the 2 risks that we have identified for R Systems International, visit our risk dashboard free of charge.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. 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.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.