Jiangsu Yunyi ElectricLtd (SZSE:300304) has had a great run on the share market with its stock up by a significant 34% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Jiangsu Yunyi ElectricLtd's ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
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 Jiangsu Yunyi ElectricLtd is:
13% = CN¥409m ÷ CN¥3.1b (Based on the trailing twelve months to September 2024).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn 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. 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.
Jiangsu Yunyi ElectricLtd's Earnings Growth And 13% ROE
To start with, Jiangsu Yunyi ElectricLtd's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 8.2%. This certainly adds some context to Jiangsu Yunyi ElectricLtd's decent 17% net income growth seen over the past five years.
We then compared Jiangsu Yunyi ElectricLtd'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 9.0% in the same 5-year period.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Jiangsu Yunyi ElectricLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Jiangsu Yunyi ElectricLtd Making Efficient Use Of Its Profits?
Jiangsu Yunyi ElectricLtd has a low three-year median payout ratio of 17%, meaning that the company retains the remaining 83% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.
Besides, Jiangsu Yunyi ElectricLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.
Summary
Overall, we are quite pleased with Jiangsu Yunyi ElectricLtd's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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.
