Is Zhejiang Huatie Emergency Equipment Science & Technology Co.,Ltd.'s (SHSE:603300) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that Zhejiang Huatie Emergency Equipment Science & TechnologyLtd's (SHSE:603300) stock increased significantly by 16% over the past week. 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 Zhejiang Huatie Emergency Equipment Science & TechnologyLtd's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. 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 Zhejiang Huatie Emergency Equipment Science & TechnologyLtd

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 Zhejiang Huatie Emergency Equipment Science & TechnologyLtd is:

14% = CN¥849m ÷ CN¥6.0b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.14 in profit.

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.

Zhejiang Huatie Emergency Equipment Science & TechnologyLtd's Earnings Growth And 14% ROE

At first glance, Zhejiang Huatie Emergency Equipment Science & TechnologyLtd seems to have a decent ROE. On comparing with the average industry ROE of 5.2% the company's ROE looks pretty remarkable. This probably laid the ground for Zhejiang Huatie Emergency Equipment Science & TechnologyLtd's significant 31% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

We then compared Zhejiang Huatie Emergency Equipment Science & TechnologyLtd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 9.3% in the same 5-year 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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Zhejiang Huatie Emergency Equipment Science & TechnologyLtd is trading on a high P/E or a low P/E, relative to its industry.

Is Zhejiang Huatie Emergency Equipment Science & TechnologyLtd Using Its Retained Earnings Effectively?

Zhejiang Huatie Emergency Equipment Science & TechnologyLtd's ' three-year median payout ratio is on the lower side at 19% implying that it is retaining a higher percentage (81%) of its profits. So it looks like Zhejiang Huatie Emergency Equipment Science & TechnologyLtd is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Zhejiang Huatie Emergency Equipment Science & TechnologyLtd has paid dividends over a period of eight years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

On the whole, we feel that Zhejiang Huatie Emergency Equipment Science & TechnologyLtd's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.