Beijing Jingpin Tezhuang TechnologyLtd (SHSE:688084) has had a rough three months with its share price down 34%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Beijing Jingpin Tezhuang TechnologyLtd's ROE.

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?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Beijing Jingpin Tezhuang TechnologyLtd is:

1.8% = CN¥30m ÷ CN¥1.7b (Based on the trailing twelve months to December 2023).

The 'return' is the profit over the last twelve months. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.02 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Beijing Jingpin Tezhuang TechnologyLtd's Earnings Growth And 1.8% ROE

It is quite clear that Beijing Jingpin Tezhuang TechnologyLtd's ROE is rather low. Even when compared to the industry average of 5.9%, the ROE figure is pretty disappointing. In spite of this, Beijing Jingpin Tezhuang TechnologyLtd was able to grow its net income considerably, at a rate of 70% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Beijing Jingpin Tezhuang TechnologyLtd'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 13%.

Earnings growth is an important metric to consider when valuing a stock. 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. Is Beijing Jingpin Tezhuang TechnologyLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Beijing Jingpin Tezhuang TechnologyLtd Using Its Retained Earnings Effectively?

The three-year median payout ratio for Beijing Jingpin Tezhuang TechnologyLtd is 44%, which is moderately low. The company is retaining the remaining 56%. So it seems that Beijing Jingpin Tezhuang TechnologyLtd is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

While Beijing Jingpin Tezhuang TechnologyLtd has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Conclusion

In total, it does look like Beijing Jingpin Tezhuang TechnologyLtd has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.