It is hard to get excited after looking at FangDa Carbon New MaterialLtd's (SHSE:600516) recent performance, when its stock has declined 4.1% over the past week. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Stock prices are usually driven by a company's financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. Particularly, we will be paying attention to FangDa Carbon New MaterialLtd's ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
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 FangDa Carbon New MaterialLtd is:
2.0% = CN¥370m ÷ CN¥19b (Based on the trailing twelve months to March 2024).
The 'return' is the amount earned after tax over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.02 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. 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. 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.
FangDa Carbon New MaterialLtd's Earnings Growth And 2.0% ROE
It is hard to argue that FangDa Carbon New MaterialLtd's ROE is much good in and of itself. Not just that, even compared to the industry average of 6.9%, the company's ROE is entirely unremarkable. Given the circumstances, the significant decline in net income by 39% seen by FangDa Carbon New MaterialLtd over the last five years is not surprising. We reckon that there could also be other factors at play here. Such as - low earnings retention or poor allocation of capital.
That being said, we compared FangDa Carbon New MaterialLtd's performance with the industry and were concerned when we found that while the company has shrunk its earnings, the industry has grown its earnings at a rate of 12% in the same 5-year period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if FangDa Carbon New MaterialLtd is trading on a high P/E or a low P/E, relative to its industry.
Is FangDa Carbon New MaterialLtd Making Efficient Use Of Its Profits?
While the company did payout a portion of its dividend in the past, it currently doesn't pay a regular dividend. This implies that potentially all of its profits are being reinvested in the business.
Conclusion
Overall, we have mixed feelings about FangDa Carbon New MaterialLtd. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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.
FangDa Carbon New MaterialLtd(SHSE:600516)は、過去1週間で株価が4.1%下落したことを考慮すると、その最近のパフォーマンスを見ても興奮するのは難しいです。しかし、私たちは、株価の下落と何らかの関係があるかどうかを判断するため、同社の財務状況を調べることにしました。株価は通常、企業の長期的な財務パフォーマンスによって推進されるため、同社の財務パフォーマンスにより注目することにしました。特に、今日はFangDa Carbon New MaterialLtdのroeに注目します。
FangDa Carbon New MaterialLtdのEarnings Growthと2.0%ROE
FangDa Carbon New MaterialLtdのroe自体は良好ではないと主張するのは難しいです。それだけでなく、6.9%という業界平均に比べて、同社のroeは完全に目立たないものです。このような状況で、FangDa Carbon New Material Ltdの当期純利益が過去5年間に39%減少したことは驚くべきことではありません。低収益保持またはキャピタルアロケーションの悪さなど、他の要因が影響している可能性もあると考えています。
とは言うものの、私たちはFangDa Carbon New MaterialLtdのパフォーマンスを業界と比較しました。その結果、同社が収益を縮小している一方で、同じ5年間に業界は12%の割合で収益を増やしていることが判明し、懸念されました。
全セクターにわたる分析家は、FangDa Carbon New MaterialLtdに関して、業界平均で収益が改善することを期待しています。ただし、低いROEが示唆するように、利益成長は低いため、投資家は再投資の多くを資金調達しているわけではない可能性があります。現在の分析家の見積もりを見ると、同社の収益成長率が大幅に改善されることが期待されていることがわかりました。同社の将来の収益成長予測について詳しく知るには、この企業の分析家予測に関する無料レポートを参照してください。
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。