It is hard to get excited after looking at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's (SHSE:601952) recent performance, when its stock has declined 6.0% over the past month. 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 a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

How Do You Calculate Return On Equity?

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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd is:

11% = CN¥824m ÷ CN¥7.2b (Based on the trailing twelve months to March 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.11 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. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company's earnings growth potential. 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.

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 8.1%. This probably laid the ground for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's moderate 7.9% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's growth is quite high when compared to the industry average growth of 2.9% in the same period, which is great to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It's important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. 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 Efficiently Re-investing Its Profits?

Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has a three-year median payout ratio of 44%, which implies that it retains the remaining 56% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

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.

Conclusion

Overall, we are quite pleased with Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's performance. 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. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.