NKT’s (CPH:NKT) stock up by 2.6% over the past month. Given its impressive performance, we decided to study the company’s key financial indicators as a company’s long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on NKT’s ROE.
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.
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for NKT is:
12% = €245m ÷ €2.0b (Based on the trailing twelve months to March 2025).
The ‘return’ is the profit over the last twelve months. One way to conceptualize this is that for each DKK1 of shareholders’ capital it has, the company made DKK0.12 in profit.
See our latest analysis for NKT
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.
NKT’s Earnings Growth And 12% ROE
To begin with, NKT seems to have a respectable ROE. Even when compared to the industry average of 13% the company’s ROE looks quite decent. Consequently, this likely laid the ground for the impressive net income growth of 75% seen over the past five years by NKT. However, there could also be other drivers behind this growth. Such as – high earnings retention or an efficient management in place.
We then compared NKT’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 19% in the same 5-year period.
CPSE:NKT Past Earnings Growth June 15th 2025
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is NKT worth today? The intrinsic value infographic in our free research report helps visualize whether NKT is currently mispriced by the market.
Is NKT Efficiently Re-investing Its Profits?
Given that NKT 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
Overall, we are quite pleased with NKT’s performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company’s earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.