Are Robust Financials Driving The Recent Rally In Tara Chand Logistic Solutions Limited's (NSE:TARACHAND) Stock?

Simply Wall St · 10/15 00:36

Tara Chand Logistic Solutions' (NSE:TARACHAND) stock is up by a considerable 11% over the past week. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Tara Chand Logistic Solutions' ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Tara Chand Logistic Solutions

How To Calculate Return On Equity?

ROE 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 Tara Chand Logistic Solutions is:

18% = ₹169m ÷ ₹949m (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.18 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Tara Chand Logistic Solutions' Earnings Growth And 18% ROE

To begin with, Tara Chand Logistic Solutions seems to have a respectable ROE. On comparing with the average industry ROE of 7.0% the company's ROE looks pretty remarkable. Probably as a result of this, Tara Chand Logistic Solutions was able to see an impressive net income growth of 25% over the last five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between Tara Chand Logistic Solutions' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 27% in the same 5-year period.

past-earnings-growth
NSEI:TARACHAND Past Earnings Growth October 15th 2024

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Tara Chand Logistic Solutions fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Tara Chand Logistic Solutions Making Efficient Use Of Its Profits?

Given that Tara Chand Logistic Solutions doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

On the whole, we feel that Tara Chand Logistic Solutions' performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. To know the 4 risks we have identified for Tara Chand Logistic Solutions visit our risks dashboard for free.