It is hard to get excited after looking at Riyadh Cables Group's (TADAWUL:4142) recent performance, when its stock has declined 7.2% over the past three months. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Riyadh Cables Group'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

How To Calculate Return On Equity?

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 Riyadh Cables Group is:

37% = ر.س1.1b ÷ ر.س2.9b (Based on the trailing twelve months to September 2025).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every SAR1 worth of equity, the company was able to earn SAR0.37 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Riyadh Cables Group's Earnings Growth And 37% ROE

First thing first, we like that Riyadh Cables Group has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 8.8% which is quite remarkable. So, the substantial 36% net income growth seen by Riyadh Cables Group over the past five years isn't overly surprising.

Next, on comparing with the industry net income growth, we found that Riyadh Cables Group's growth is quite high when compared to the industry average growth of 12% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is Riyadh Cables Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Riyadh Cables Group Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 64% (implying that it keeps only 36% of profits) for Riyadh Cables Group suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, Riyadh Cables Group is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 55% of its profits over the next three years. Regardless, Riyadh Cables Group's ROE is speculated to decline to 21% despite there being no anticipated change in its payout ratio.

Summary

In total, we are pretty happy with Riyadh Cables Group's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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.

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.