China Publishing & Media Holdings (SHSE:601949) has had a rough three months with its share price down 11%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study China Publishing & Media Holdings' ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for China Publishing & Media Holdings
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for China Publishing & Media Holdings is:
8.1% = CN¥792m ÷ CN¥9.7b (Based on the trailing twelve months to September 2023).
The 'return' is the profit over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.08 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. 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.
China Publishing & Media Holdings' Earnings Growth And 8.1% ROE
At first glance, China Publishing & Media Holdings' ROE doesn't look very promising. However, the fact that the company's ROE is higher than the average industry ROE of 6.1%, is definitely interesting. Having said that, China Publishing & Media Holdings' net income growth over the past five years is more or less flat. Remember, the company's ROE is a bit low to begin with, just that it is higher than the industry average. Hence, this goes some way in explaining the flat earnings growth.
As a next step, we compared China Publishing & Media Holdings' net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 1.6% 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. If you're wondering about China Publishing & Media Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is China Publishing & Media Holdings Using Its Retained Earnings Effectively?
Despite having a moderate three-year median payout ratio of 29% (meaning the company retains71% of profits) in the last three-year period, China Publishing & Media Holdings' earnings growth was more or les flat. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.
Additionally, China Publishing & Media Holdings has paid dividends over a period of six years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth.
Summary
In total, it does look like China Publishing & Media Holdings has some positive aspects to its business. Particularly, its earnings have grown respectably as we saw earlier, which was likely achieved due to the company reinvesting most of its earnings at a decent rate of return, to grow its business. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of China Publishing & Media Holdings' past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
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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.
