Jiangsu Lianyungang Port (SHSE:601008) has had a great run on the share market with its stock up by a significant 15% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Jiangsu Lianyungang Port'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Jiangsu Lianyungang Port is:

5.1% = CN¥280m ÷ CN¥5.5b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.05 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Jiangsu Lianyungang Port's Earnings Growth And 5.1% ROE

At first glance, Jiangsu Lianyungang Port's ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 6.2%. Looking at Jiangsu Lianyungang Port's exceptional 48% five-year net income growth in particular, we are definitely impressed. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then compared Jiangsu Lianyungang Port's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 6.0% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Jiangsu Lianyungang Port's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jiangsu Lianyungang Port Efficiently Re-investing Its Profits?

Jiangsu Lianyungang Port has a three-year median payout ratio of 31% (where it is retaining 69% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Jiangsu Lianyungang Port is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Jiangsu Lianyungang Port has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

On the whole, we do feel that Jiangsu Lianyungang Port has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 1 risk we have identified for Jiangsu Lianyungang Port by visiting our risks dashboard for free on our platform here.

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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.