Kinatico (ASX:KYP) has had a rough month with its share price down 7.7%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Kinatico’s ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

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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 Kinatico is:

3.2% = AU$840k ÷ AU$26m (Based on the trailing twelve months to December 2024).

The ‘return’ is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each A$1 of shareholders’ capital it has, the company made A$0.03 in profit.

See our latest analysis for Kinatico

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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.

It is hard to argue that Kinatico’s ROE is much good in and of itself. Not just that, even compared to the industry average of 5.0%, the company’s ROE is entirely unremarkable. Despite this, surprisingly, Kinatico saw an exceptional 44% net income growth over the past five years. We reckon that there could be other factors at play here. Such as – high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Kinatico’s growth is quite high when compared to the industry average growth of 24% in the same period, which is great to see.