Suzhou Hengmingda Electronics Technology Co., Ltd. (SZSE:002947) has been performing well on the share market, with its share price rising by 44% in the past three months. Given the company’s impressive performance, we decided to study the company’s financial indicators in more detail as a company’s long term financial health often determines market outcomes. Specifically, we decided to look at Suzhou Hengmingda Electronics Technology’s ROE in this article.
Return on Equity (ROE) is a measure of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio that measures the rate of return on the capital provided by a company’s shareholders.
Read our latest analysis for Suzhou Hengmingda Electronic Technology
How to Calculate Return on Equity?
The formula for calculating ROE is as follows:
Return on Equity = Net Income (from continuing operations) / Shareholders’ Equity
So, based on the above formula, Suzhou Hengmingda Electronics Technology’s ROE is:
15% = CNY 311 million / CNY 2.1 billion (Based on the trailing twelve months to March 2024).
“Return” refers to the profit the company made over the past year. Another way to think of this is that for every RMB1 worth of capital, the company was able to make RMB0.15 worth of 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 a company chooses to reinvest or “retain”, we are then able to evaluate a company’s future profit-generating ability. Assuming all else remains constant, the higher the ROE and retained profits, the higher a company’s growth rate will be relative to companies that don’t necessarily have these characteristics.
Suzhou Hengmingda Electronics Technology’s revenue growth and 15% ROE
At first glance, Suzhou Hengmingda Electronics Technology’s ROE looks decent, especially when compared to the industry average of 6.3%.The company’s ROE is quite impressive, which is likely the basis for Suzhou Hengmingda Electronics Technology’s modest 15% net profit growth over the past five years.
Next, compared with the industry’s net profit growth rate, we find that compared with the industry average growth rate of 6.4% during the same period, Suzhou Hengmingda Electronic Technology’s growth rate is very high and impressive.
SZSE:002947 Historical Revenue Growth July 14, 2024
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is whether the expected earnings growth, or lack thereof, is already priced into the share price. Doing so will help them determine if the stock’s future is promising or ominous. If you’re in doubt about Suzhou Hengmingda Electronics Technology’s valuation, check out this metric of its price-to-earnings ratio compared to its industry.
Is Suzhou Hengmingda Electronics Technology making effective use of its retained earnings?
Suzhou Hengmingda Electronics Technology’s three-year median dividend payout ratio is 39%, implying that it has retained the remaining 61% of its profits. This suggests that the dividend is well covered, and given the company’s steady growth, it looks like management is reinvesting profits efficiently.
Furthermore, Suzhou Hengmingda Electronics Technology has been paying dividends for five years, indicating that the company is committed to sharing profits with shareholders.
summary
Overall, we are very pleased with Suzhou Hengmingda Electronics Technology’s performance. It’s particularly great to see the company investing heavily in its business, which, along with a high rate of return, is translating into strong revenue growth. If the company continues to grow revenue as it has, this could have a positive impact on the share price, given how earnings per share can impact share price in the long term. Not to forget, share price outcomes are also dependent on the risks a company may face. It is therefore important that investors are aware of the risks associated with the business. Our risks dashboard shows 1 risk we have identified for Suzhou Hengmingda Electronics Technology.
Valuation is complicated, but we can help make it simple.
Find out whether Suzhou Hengmingda Electronic Technology is potentially overvalued or undervalued by checking our comprehensive analysis including fair value estimates, risks and warnings, dividends, insider transactions, financials and more.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
Valuation is complicated, but we can help make it simple.
Find out whether Suzhou Hengmingda Electronic Technology is potentially overvalued or undervalued by checking our comprehensive analysis including fair value estimates, risks and warnings, dividends, insider transactions, financials and more.
View free analysis
Have something to say about this article? If you have any questions about the content, please contact us directly or email us at editorial-team@simplywallst.com.
