Do Its Financials Have Any Role To Play In Driving Ningbo Sinyuan Zm Technology Co., Ltd.'s (SZSE:301398) Stock Up Recently?

Ningbo Sinyuan Zm Technology (SZSE:301398) has had a great run on the share market with its stock up by a significant 14% over the last week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Ningbo Sinyuan Zm Technology'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Ningbo Sinyuan Zm Technology

How Do You Calculate Return On Equity?

ROE 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 Ningbo Sinyuan Zm Technology is:

7.5% = CN¥81m ÷ CN¥1.1b (Based on the trailing twelve months to March 2024).

The 'return' is the income the business earned over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.08.

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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Ningbo Sinyuan Zm Technology's Earnings Growth And 7.5% ROE

At first glance, Ningbo Sinyuan Zm Technology's ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 8.2%. Even so, Ningbo Sinyuan Zm Technology has shown a fairly decent growth in its net income which grew at a rate of 9.8%. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's 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 Ningbo Sinyuan Zm Technology's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 8.7% in the same period.

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 Ningbo Sinyuan Zm Technology fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Ningbo Sinyuan Zm Technology Efficiently Re-investing Its Profits?

With a three-year median payout ratio of 34% (implying that the company retains 66% of its profits), it seems that Ningbo Sinyuan Zm Technology is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Along with seeing a growth in earnings, Ningbo Sinyuan Zm Technology only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Summary

In total, it does look like Ningbo Sinyuan Zm Technology has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com