Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952) has had a rough three months with its share price down 4.0%. 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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd

How Is ROE Calculated?

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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd is:

11% = CN¥763m ÷ CN¥6.8b (Based on the trailing twelve months to September 2023).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.11 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. 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 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.

A Side By Side comparison of Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's Earnings Growth And 11% ROE

To start with, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 8.5%. This probably laid the ground for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's moderate 7.5% net income growth seen over the past five years.

As a next step, we compared Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 7.3% in the same period.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 43% (implying that the company retains 57% of its profits), it seems that Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Moreover, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd is determined to keep sharing its profits with shareholders which we infer from its long history of six years of paying a dividend.

Summary

On the whole, we feel that Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.