HARBIN GLORIA PHARMACEUTICALS (SZSE:002437) has had a great run on the share market with its stock up by a significant 34% over the last three months. 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. Specifically, we decided to study HARBIN GLORIA PHARMACEUTICALS' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.
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 HARBIN GLORIA PHARMACEUTICALS is:
4.7% = CN¥89m ÷ CN¥1.9b (Based on the trailing twelve months to September 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¥0.05 in profit.
Why Is ROE Important For 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. 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.
A Side By Side comparison of HARBIN GLORIA PHARMACEUTICALS' Earnings Growth And 4.7% ROE
It is quite clear that HARBIN GLORIA PHARMACEUTICALS' ROE is rather low. Even when compared to the industry average of 7.7%, the ROE figure is pretty disappointing. Despite this, surprisingly, HARBIN GLORIA PHARMACEUTICALS saw an exceptional 63% net income growth over the past five years. Therefore, there could be other reasons behind this growth. Such as - high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that HARBIN GLORIA PHARMACEUTICALS' growth is quite high when compared to the industry average growth of 9.1% in the same period, which is great to see.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about HARBIN GLORIA PHARMACEUTICALS''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is HARBIN GLORIA PHARMACEUTICALS Efficiently Re-investing Its Profits?
Given that HARBIN GLORIA PHARMACEUTICALS doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
Conclusion
On the whole, we do feel that HARBIN GLORIA PHARMACEUTICALS has some positive attributes. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. 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 2 risks we have identified for HARBIN GLORIA PHARMACEUTICALS 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.