Southern Publishing and MediaLtd's (SHSE:601900) stock is up by a considerable 18% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Southern Publishing and MediaLtd'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
View our latest analysis for Southern Publishing and MediaLtd
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 Southern Publishing and MediaLtd is:
15% = CN¥1.2b ÷ CN¥8.2b (Based on the trailing twelve months to September 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¥0.15 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.
A Side By Side comparison of Southern Publishing and MediaLtd's Earnings Growth And 15% ROE
At first glance, Southern Publishing and MediaLtd seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 6.1%. This probably laid the ground for Southern Publishing and MediaLtd's moderate 9.7% net income growth seen over the past five years.
Next, on comparing with the industry net income growth, we found that Southern Publishing and MediaLtd's growth is quite high when compared to the industry average growth of 1.6% in the same period, which is great to see.
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 Southern Publishing and MediaLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Southern Publishing and MediaLtd Using Its Retained Earnings Effectively?
Southern Publishing and MediaLtd has a three-year median payout ratio of 35%, which implies that it retains the remaining 65% 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.
Additionally, Southern Publishing and MediaLtd has paid dividends over a period of seven years which means that the company is pretty serious about sharing its profits with shareholders.
Summary
Overall, we are quite pleased with Southern Publishing and MediaLtd's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
