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Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) stock is up by a considerable 13% over the past week. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima
How Is ROE Calculated?
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 Loma Negra Compañía Industrial Argentina Sociedad Anónima is:
16% = AR$33b ÷ AR$205b (Based on the trailing twelve months to September 2023).
The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.16 in profit.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 16% ROE
To start with, Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 14%. This certainly adds some context to Loma Negra Compañía Industrial Argentina Sociedad Anónima's moderate 20% net income growth seen over the past five years.
As a next step, we compared Loma Negra Compañía Industrial Argentina Sociedad Anónima's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 20% in the same period.