Most readers would already be aware that Jiangsu Phoenix Publishing & Media's (SHSE:601928) stock increased significantly by 8.7% over the past month. 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 Phoenix Publishing & Media's ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
How To Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Jiangsu Phoenix Publishing & Media is:
16% = CN¥3.0b ÷ CN¥18b (Based on the trailing twelve months to December 2023).
The 'return' is the income the business earned over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.16 in profit.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
A Side By Side comparison of Jiangsu Phoenix Publishing & Media's Earnings Growth And 16% ROE
To start with, Jiangsu Phoenix Publishing & Media's ROE looks acceptable. On comparing with the average industry ROE of 6.1% the company's ROE looks pretty remarkable. This certainly adds some context to Jiangsu Phoenix Publishing & Media's decent 16% net income growth seen over the past five years.
As a next step, we compared Jiangsu Phoenix Publishing & Media's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 1.8%.
Earnings growth is an important metric to consider when valuing a stock. It's important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Jiangsu Phoenix Publishing & Media's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Jiangsu Phoenix Publishing & Media Using Its Retained Earnings Effectively?
Jiangsu Phoenix Publishing & Media has a significant three-year median payout ratio of 55%, meaning that it is left with only 45% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.
Additionally, Jiangsu Phoenix Publishing & Media 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.
Summary
Overall, we are quite pleased with Jiangsu Phoenix Publishing & Media's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.