Most readers already know that shares of Deyun Holding (HKG:1440) are up a significant 19% over the past week. Since the market usually pays for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could influence the market. In particular, we will pay attention to the ROE of Deyun Holding today.
Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In simple terms, it is used to assess the profitability of a company in relation to its equity.
See our latest analysis for Deyun Holding
How is ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Deyun Holding is:
13% = CN¥42 million ÷ CN¥333 million (based on the last twelve months to December 2021).
“Yield” is the income the business has earned over the past year. This means that for every HK$1 of equity, the company generated HK$0.13 of profit.
Why is ROE important for earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
A side-by-side comparison of Deyun Holding’s earnings growth and 13% ROE
For starters, Deyun Holding appears to have a respectable ROE. Additionally, the company’s ROE compares quite favorably to the industry average of 8.3%. This certainly adds some context to Deyun Holding’s decent 19% net income growth over the past five years.
Considering the fact that industry profits fell 6.5% over the same period, the company’s net profit growth is quite remarkable.
Earnings growth is an important metric to consider when evaluating a stock. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This will help them determine if the future of the title looks bright or ominous. If you’re wondering about the valuation of Deyun Holding, check out this indicator of its price/earnings ratio, relative to its sector.
Does Deyun Holding use its profits efficiently?
Deyun Holding currently pays no dividends, which essentially means that it has reinvested all of its profits back into the business. This certainly contributes to the decent number of earnings growth we discussed above.
Overall, we believe Deyun Holding’s performance has been quite good. In particular, it is good to see that the company is investing heavily in its business, and together with a high rate of return, this has led to significant growth in its profits. If the company continues to increase its earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Not to mention that stock price results also depend on the potential risks a company may face. It is therefore important for investors to be aware of the risks associated with the business. To know the 2 risks that we have identified for Deyun Holding, visit our risk dashboard for free.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.