HIT Welding IndustryLtd's (SZSE:301137) stock is up by a considerable 14% over the past week. 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. In this article, we decided to focus on HIT Welding IndustryLtd's ROE.
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.
See our latest analysis for HIT Welding IndustryLtd
How To Calculate Return On Equity?
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 HIT Welding IndustryLtd is:
3.6% = CN¥47m ÷ CN¥1.3b (Based on the trailing twelve months to June 2023).
The 'return' refers to a company's earnings 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?
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. 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.
HIT Welding IndustryLtd's Earnings Growth And 3.6% ROE
As you can see, HIT Welding IndustryLtd's ROE looks pretty weak. Not just that, even compared to the industry average of 7.9%, the company's ROE is entirely unremarkable. For this reason, HIT Welding IndustryLtd's five year net income decline of 12% is not surprising given its lower ROE. We reckon that there could also be other factors at play here. For instance, the company has a very high payout ratio, or is faced with competitive pressures.
However, when we compared HIT Welding IndustryLtd's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 11% in the same period. This is quite worrisome.
SZSE:301137 Past Earnings Growth September 28th 2023
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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about HIT Welding IndustryLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is HIT Welding IndustryLtd Making Efficient Use Of Its Profits?
Despite having a normal three-year median payout ratio of 25% (where it is retaining 75% of its profits), HIT Welding IndustryLtd has seen a decline 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.
Additionally, HIT Welding IndustryLtd started paying a dividend only recently. So it looks like the management may have perceived that shareholders favor dividends even though earnings have been in decline.
Summary
On the whole, we feel that the performance shown by HIT Welding IndustryLtd can be open to many interpretations. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. To know the 3 risks we have identified for HIT Welding IndustryLtd visit our risks dashboard for free.
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HIT Welding IndustryLtdのROEは非常に弱いように見えます。また、業界平均の7.9%と比較しても、同社のROEはまったく目立ちません。したがって、同社の5年間の純利益減少率が12%であるのも当然であると考えられます。例えば、同社の配当比率が非常に高い、または競争の圧力に直面している可能性があるため、その他の要因もあると見られます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。