NORINCO International Cooperation (SZSE:000065) has had a rough week with its share price down 7.5%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on NORINCO International Cooperation's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. Put another way, it reveals the company's success at turning shareholder investments into profits.

How Is ROE Calculated?

ROE 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 NORINCO International Cooperation is:

11% = CN¥1.0b ÷ CN¥9.5b (Based on the trailing twelve months to March 2024).

The 'return' is the yearly profit. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.11 in profit.

What Is The Relationship Between ROE And 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

NORINCO International Cooperation's Earnings Growth And 11% ROE

When you first look at it, NORINCO International Cooperation's ROE doesn't look that attractive. Although a closer study shows that the company's ROE is higher than the industry average of 7.3% which we definitely can't overlook. Consequently, this likely laid the ground for the decent growth of 6.0% seen over the past five years by NORINCO International Cooperation. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

As a next step, we compared NORINCO International Cooperation'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 an important metric to consider when valuing a stock. It's important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is 000065 worth today? The intrinsic value infographic in our free research report helps visualize whether 000065 is currently mispriced by the market.

Is NORINCO International Cooperation Efficiently Re-investing Its Profits?

NORINCO International Cooperation's three-year median payout ratio to shareholders is 9.3% (implying that it retains 91% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

Additionally, NORINCO International Cooperation has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, it does look like NORINCO International Cooperation has some positive aspects to its business. In particular, it's great to see that the company is investing heavily into its business and along with a moderate rate of return, that has resulted in a respectable 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.