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With its stock down 10% over the past week, it is easy to disregard IAMGOLD (TSE:IMG). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to IAMGOLD's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

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

So, based on the above formula, the ROE for IAMGOLD is:

25% = US$848m ÷ US$3.4b (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.25 in profit.

View our latest analysis for IAMGOLD

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

IAMGOLD's Earnings Growth And 25% ROE

First thing first, we like that IAMGOLD has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 10.0% which is quite remarkable. As a result, IAMGOLD's exceptional 76% net income growth seen over the past five years, doesn't come as a surprise.

We then compared IAMGOLD's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 21% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is IAMGOLD fairly valued compared to other companies? These 3 valuation measures might help you decide.