Jiangsu Phoenix Publishing & Media's (SHSE:601928) stock is up by 6.9% over the past three months. Since the market usually pay for a company's long-term financial health, we decided to study the company's fundamentals to see if they could be influencing the market. Particularly, we will be paying attention to Jiangsu Phoenix Publishing & Media's ROE today.
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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
Check out our latest analysis for Jiangsu Phoenix Publishing & Media
How Do You Calculate Return On Equity?
The formula for ROE 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:
12% = CN¥2.1b ÷ CN¥18b (Based on the trailing twelve months to September 2023).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.12.
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. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company's earnings growth potential. 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.
Jiangsu Phoenix Publishing & Media's Earnings Growth And 12% ROE
To begin with, Jiangsu Phoenix Publishing & Media seems to have a respectable ROE. 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 15% 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 1.6%.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Jiangsu Phoenix Publishing & Media fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Jiangsu Phoenix Publishing & Media Efficiently Re-investing Its Profits?
While Jiangsu Phoenix Publishing & Media has a three-year median payout ratio of 57% (which means it retains 43% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.
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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.