Despite Recent Weakness, NCC AB (publ) (STO:NCC B) Stock Boasts Strong Financials: Is it a Wise Investment for Potential Shareholders?

NCC B, which is listed on the Stockholm stock exchange, has faced a difficult period of three months as the value of its shares has dropped by 12%. Even so, if we take a more detailed look at its fiscal health, it might change our perspective. Generally speaking, the basics are what dictate the long-term outcomes of a market, so it is definitely worth investigating this company. Specifically, we will closely analyze NCC's ROE, which stands for return on equity.

As a stakeholder, it's crucial to pay attention to the return on equity or ROE because it shows how efficiently your investment is being utilized. Essentially, it gauges a company's profitability based on the amount of equity capital it has.

Have a look at our most recent assessment of NCC.

What is the method of computing Return On Equity?

To figure out the return on equity, you can use this formula:

The Return on Equity can be calculated by dividing a company's net profit from continuing operations by the shareholders' equity.

Using the formula shown above, we can calculate the ROE for NCC as follows:

The calculation for the 15% figure is derived from dividing kr1.1 billion by kr7.2 billion, which is based on the trailing twelve months leading up to December 2022.

When we talk about the 'return', we are actually talking about the money that a company has earned in the past year. In simpler terms, if an investor puts SEK1 into the company, they can expect a return of SEK0.15 in profits.

The Significance of ROE in Achieving Earnings Growth.

So far, we've grasped that ROE gauges how effective a business is at creating its earnings. Now, it's crucial to assess the amount of profit that the company plows back into its operations or "retains" for potential growth. This helps us get a glimpse of the company's potential for expansion. Assuming that everything else is equal, it's generally observed that firms with a better return on equity and higher profit retention tend to have a higher growth rate than those that lack these attributes.

Comparing NCC's Earnings Growth and 15% ROE: A Detailed Analysis

Starting off, it appears that NCC's ROE is admirable. In fact, when held up against the industry average of 13%, the business seems to have a rather impressive ROE. This could be one of the reasons why NCC has managed to achieve a considerable 35% hike in net income over the previous five years; among other things, of course. Still, there are likely other factors that have propelled this growth. For example, NCC could have a low payout ratio or be displaying strong management practices.

Afterwards, when we analyzed the growth of NCC's net income in relation to the industry, we discovered that the rate of increase reported by the company is comparable to the average growth rate of the industry, which was also 34% during the same time frame.

To determine a company's worth, a key factor is the growth of its profits. Investors should be aware of whether the market has already taken into account the company's projected growth or decline in earnings. This knowledge can give insight into whether the company's future looks positive or negative. To find out if NCC B is priced appropriately, take a look at this infographic that provides information on the company's inherent value.

Is NCC utilizing its profits effectively?

NCC has a payout ratio of 43% over the last three years, which is not too high. They are keeping 57% of their earnings which indicates that they are investing their profits effectively to achieve substantial revenue growth, as discussed previously. Additionally, their dividend seems to be secure with sufficient coverage.

Furthermore, NCC has distributed profits to its shareholders consistently for at least ten years, indicating a strong commitment towards sharing its success. After analyzing the latest expert opinions, it was discovered that the company is projected to increase its payout ratio to 72% in the next three years. Despite this increase, there is not much change expected in the company's ROE.

In general, we are happy with how NCC is doing. We are especially impressed with how much the company is putting into its business, which has caused its earnings to increase by a lot. However, some experts in the industry think that NCC's earnings growth might not continue to be as high. We don't know if this prediction is based on what's happening in the whole industry or just NCC's own situation. If you want to see what these experts are saying, you can check out their forecasts for NCC here.

Simplifying the Complexities of Valuation.

Discover NCC's potential value by exploring our thorough analysis, encompassing fair valuation estimates, potential risks, dividend information, insider dealings and overall financial stability.

Check out the complimentary examination

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This post from Simply Wall St is broad in scope. We offer our thoughts based on past information and analysts' predictions, without bias, and our posts should not be interpreted as financial recommendations. We do not suggest you buy or sell any particular company's stocks, without taking into account your goals and financial standing. Our aim is to give you in-depth analysis that centers around fundamental details for the long-term. Please note that our assessments may not incorporate the latest, market-moving firm updates or subjective factors. It's worth mentioning that Simply Wall St has no stake in any stocks discussed.