Do Its Financials Have Any Role To Play In Driving Excellent Wires and Packaging Limited's (NSE:EXCELLENT) Stock Up Recently?

Excellent Wires and Packaging (NSE:EXCELLENT) has had a great run on the share market with its stock up by a significant 11% over the last week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Excellent Wires and Packaging's ROE in this article.

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.

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How Do You 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 Excellent Wires and Packaging is:

6.1% = ₹12m ÷ ₹196m (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.06.

See our latest analysis for Excellent Wires and Packaging

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.

Excellent Wires and Packaging's Earnings Growth And 6.1% ROE

It is quite clear that Excellent Wires and Packaging's ROE is rather low. Even compared to the average industry ROE of 9.7%, the company's ROE is quite dismal. However, we we're pleasantly surprised to see that Excellent Wires and Packaging grew its net income at a significant rate of 44% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Excellent Wires and Packaging's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 24%.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Excellent Wires and Packaging's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Excellent Wires and Packaging Using Its Retained Earnings Effectively?

Given that Excellent Wires and Packaging 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 do feel that Excellent Wires and Packaging has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 4 risks we have identified for Excellent Wires and Packaging by visiting our risks dashboard for free on our platform here.

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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.