Is Anhui Transport Consulting & Design Institute Co.,Ltd.'s (SHSE:603357) Latest Stock Performance A Reflection Of Its Financial Health?

Anhui Transport Consulting & Design InstituteLtd (SHSE:603357) has had a great run on the share market with its stock up by a significant 22% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Anhui Transport Consulting & Design InstituteLtd's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Anhui Transport Consulting & Design InstituteLtd

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Anhui Transport Consulting & Design InstituteLtd is:

12% = CN¥438m ÷ CN¥3.6b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.12 in profit.

What Is The Relationship Between ROE And Earnings Growth?

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

Anhui Transport Consulting & Design InstituteLtd's Earnings Growth And 12% ROE

At first glance, Anhui Transport Consulting & Design InstituteLtd seems to have a decent ROE. On comparing with the average industry ROE of 6.6% the company's ROE looks pretty remarkable. This probably laid the ground for Anhui Transport Consulting & Design InstituteLtd's moderate 8.6% net income growth seen over the past five years.

As a next step, we compared Anhui Transport Consulting & Design InstituteLtd'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 3.5%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. 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 Anhui Transport Consulting & Design InstituteLtd is trading on a high P/E or a low P/E, relative to its industry.

Is Anhui Transport Consulting & Design InstituteLtd Using Its Retained Earnings Effectively?

While Anhui Transport Consulting & Design InstituteLtd has a three-year median payout ratio of 51% (which means it retains 49% 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.

Besides, Anhui Transport Consulting & Design InstituteLtd has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we feel that Anhui Transport Consulting & Design InstituteLtd's performance has been quite good. 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. 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.