Has RCL Foods Limited (JSE:RCL) Stock's Recent Performance Got Anything to Do With Its Financial Health?

Yahoo

11-04-2025

Most readers would already know that RCL Foods' (JSE:RCL) stock increased by 4.8% over the past week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. In this article, we decided to focus on RCL Foods' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.
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Return on equity 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 RCL Foods is:
15% = R1.5b ÷ R10b (Based on the trailing twelve months to December 2024).
The 'return' is the income the business earned over the last year. That means that for every ZAR1 worth of shareholders' equity, the company generated ZAR0.15 in profit.
View our latest analysis for RCL Foods
So far, we've learned that ROE is a measure of a company's profitability. 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 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.
When you first look at it, RCL Foods' ROE doesn't look that attractive. However, given that the company's ROE is similar to the average industry ROE of 14%, we may spare it some thought. Moreover, we are quite pleased to see that RCL Foods' net income grew significantly at a rate of 45% over the last five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing with the industry net income growth, we found that the growth figure reported by RCL Foods compares quite favourably to the industry average, which shows a decline of 1.9% over the last few years.
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 RCL Foods fairly valued compared to other companies? These 3 valuation measures might help you decide.
RCL Foods' three-year median payout ratio is a pretty moderate 36%, meaning the company retains 64% of its income. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like RCL Foods is reinvesting its earnings efficiently.
Additionally, RCL Foods has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.
In total, it does look like RCL Foods has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. 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 1 risk we have identified for RCL Foods by visiting our risks dashboard for free on our platform here.
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