Is Glenmark Pharmaceuticals Limited (NSE: GLENMARK) mixed financial data causing negative sentiment?

0

Glenmark Pharmaceuticals (NSE: GLENMARK) had a difficult month with its share price down 4.2%. We decided, however, to study the company’s financial statements to determine if they had anything to do with falling prices. Stock prices are generally determined by a company’s financial performance over the long term, which is why we have decided to pay more attention to the financial performance of the company. In particular, we will be paying close attention to the ROE of Glenmark Pharmaceuticals today.

Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

Check out our latest review for Glenmark Pharmaceuticals

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 Glenmark Pharmaceuticals is:

12% = ₹ 11b ÷ ₹ 90b (Based on the last twelve months up to September 2021).

The “return” is the annual profit. One way to conceptualize this is that for every 1 of registered capital it has, the company has made ₹ 0.12 in profit.

What is the relationship between ROE and profit growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the company. 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.

Glenmark Pharmaceuticals profit growth and 12% ROE

At first glance, Glenmark Pharmaceuticals’ ROE doesn’t look so attractive. Then, compared to the industry average ROE of 15%, the company’s ROE leaves us even less enthusiastic. As a result, Glenmark Pharmaceuticals’ stable net income growth over the past five years is not surprising given its lower ROE.

We then compared Glenmark Pharmaceuticals’ net income growth with the industry and found that the company’s growth figure is lower than the industry average growth rate of 22% over the same period. which is a bit disturbing.

NSEI: GLENMARK Past Profit Growth December 28, 2021

The basis for attaching value to a business is, to a large extent, related to the growth of its profits. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This will help them determine whether the future of the stock looks bright or threatening. Is Glenmark Pharmaceuticals fair compared to other companies? These 3 evaluation measures could help you decide.

Is Glenmark Pharmaceuticals Efficiently Reinvesting Profits?

Glenmark Pharmaceuticals’ low three-year median payout rate of 7.1% (implying that the company retains 93% of its revenue) should mean that the company is keeping most of its profits to fuel its growth and this should happen. reflected in its growth figure, but it is not.

In addition, Glenmark Pharmaceuticals has paid dividends over a period of at least ten years, which means that the management of the company is committed to paying dividends even if it means little or no growth in earnings. Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 6.4%. As a result, forecasts suggest that the future ROE of Glenmark Pharmaceuticals will be 13%, which is again similar to the current ROE.

Summary

Overall, we have mixed feelings about Glenmark Pharmaceuticals. Although the company has a high rate of profit retention, its low rate of return is likely to hamper its profit growth. That said, the latest forecasts from industry analysts show that the company’s profits are expected to pick up. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.

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 any stock 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 any of the stocks mentioned.


Source link

Share.

Comments are closed.