CITIC Offshore Helicopter (SZSE:000099) has had a great run on the share market with its stock up by a significant 82% over the last three months. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Specifically, we decided to study CITIC Offshore Helicopter'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for CITIC Offshore Helicopter is:

4.5% = CN¥239m ÷ CN¥5.4b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.04 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don't share these attributes.

CITIC Offshore Helicopter's Earnings Growth And 4.5% ROE

As you can see, CITIC Offshore Helicopter's ROE looks pretty weak. Even when compared to the industry average of 8.3%, the ROE figure is pretty disappointing. Hence, the flat earnings seen by CITIC Offshore Helicopter over the past five years could probably be the result of it having a lower ROE.

As a next step, we compared CITIC Offshore Helicopter's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 7.8% in the same period.

Earnings growth is a huge factor in stock valuation. It's important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is CITIC Offshore Helicopter fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is CITIC Offshore Helicopter Using Its Retained Earnings Effectively?

Despite having a normal three-year median payout ratio of 25% (implying that the company keeps 75% of its income) over the last three years, CITIC Offshore Helicopter has seen a negligible amount of growth in earnings as we saw above. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Moreover, CITIC Offshore Helicopter has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Conclusion

In total, we're a bit ambivalent about CITIC Offshore Helicopter's performance. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.