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Is KRAFTON, Inc.'s (KRX:259960) Recent Performance Tethered To Its Attractive Financial Prospects?

Simply Wall St · 04/15 23:57

KRAFTON's (KRX:259960) stock up by 9.8% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to KRAFTON'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How To Calculate Return On Equity?

The formula for return on equity is:

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

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

19% = ₩1.3t ÷ ₩6.8t (Based on the trailing twelve months to December 2024).

The 'return' is the profit over the last twelve months. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.19 in profit.

See our latest analysis for KRAFTON

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

A Side By Side comparison of KRAFTON's Earnings Growth And 19% ROE

To start with, KRAFTON's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 7.5%. This certainly adds some context to KRAFTON's decent 14% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that KRAFTON's growth is quite high when compared to the industry average growth of 0.05% in the same period, which is great to see.

past-earnings-growth
KOSE:A259960 Past Earnings Growth April 15th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for A259960? You can find out in our latest intrinsic value infographic research report.

Is KRAFTON Using Its Retained Earnings Effectively?

KRAFTON doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

Summary

In total, we are pretty happy with KRAFTON's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.