Shanghai Jinqiao Export Processing Zone DevelopmentLtd (SHSE:600639) has had a great run on the share market with its stock up by a significant 29% over the last month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Shanghai Jinqiao Export Processing Zone DevelopmentLtd's ROE.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

How Is ROE Calculated?

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 Shanghai Jinqiao Export Processing Zone DevelopmentLtd is:

13% = CN¥2.1b ÷ CN¥17b (Based on the trailing twelve months to September 2023).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.13 in profit.

What Is The Relationship Between ROE And 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.

Shanghai Jinqiao Export Processing Zone DevelopmentLtd's Earnings Growth And 13% ROE

At first glance, Shanghai Jinqiao Export Processing Zone DevelopmentLtd seems to have a decent ROE. On comparing with the average industry ROE of 5.4% the company's ROE looks pretty remarkable. Probably as a result of this, Shanghai Jinqiao Export Processing Zone DevelopmentLtd was able to see a decent growth of 20% over the last five years.

When you consider the fact that the industry earnings have shrunk at a rate of 5.2% in the same 5-year period, the company's net income growth is pretty remarkable.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Shanghai Jinqiao Export Processing Zone DevelopmentLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Shanghai Jinqiao Export Processing Zone DevelopmentLtd Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 30% (implying that the company retains 70% of its profits), it seems that Shanghai Jinqiao Export Processing Zone DevelopmentLtd is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Besides, Shanghai Jinqiao Export Processing Zone DevelopmentLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with Shanghai Jinqiao Export Processing Zone DevelopmentLtd'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. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. To know the 4 risks we have identified for Shanghai Jinqiao Export Processing Zone DevelopmentLtd visit our risks dashboard for free.

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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.