Jiangsu Teeyer Intelligent EquipmentLtd's (SHSE:603273) stock is up by a considerable 14% over the past three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Specifically, we decided to study Jiangsu Teeyer Intelligent EquipmentLtd'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Jiangsu Teeyer Intelligent EquipmentLtd is:

4.8% = CN¥41m ÷ CN¥863m (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.05 in profit.

What Has ROE Got To Do With Earnings Growth?

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 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.

Jiangsu Teeyer Intelligent EquipmentLtd's Earnings Growth And 4.8% ROE

It is quite clear that Jiangsu Teeyer Intelligent EquipmentLtd's ROE is rather low. Even compared to the average industry ROE of 6.3%, the company's ROE is quite dismal. Hence, the flat earnings seen by Jiangsu Teeyer Intelligent EquipmentLtd over the past five years could probably be the result of it having a lower ROE.

We then compared Jiangsu Teeyer Intelligent EquipmentLtd's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 7.3% in the same 5-year period, which is a bit concerning.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Jiangsu Teeyer Intelligent EquipmentLtd is trading on a high P/E or a low P/E, relative to its industry.

Is Jiangsu Teeyer Intelligent EquipmentLtd Using Its Retained Earnings Effectively?

Despite having a moderate three-year median payout ratio of 34% (meaning the company retains66% of profits) in the last three-year period, Jiangsu Teeyer Intelligent EquipmentLtd's earnings growth was more or les flat. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Conclusion

On the whole, we feel that the performance shown by Jiangsu Teeyer Intelligent EquipmentLtd can be open to many interpretations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Jiangsu Teeyer Intelligent EquipmentLtd's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.