Are Strong Financial Prospects The Force That Is Driving The Momentum In Zhejiang Jasan Holding Group Co., Ltd.'s SHSE:603558) Stock?

Zhejiang Jasan Holding Group (SHSE:603558) has had a great run on the share market with its stock up by a significant 19% over the last month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Zhejiang Jasan Holding Group's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. 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 Jasan Holding Group

How To 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 Jasan Holding Group is:

13% = CN¥312m ÷ CN¥2.4b (Based on the trailing twelve months to June 2024).

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¥0.13.

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. 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 Jasan Holding Group's Earnings Growth And 13% ROE

To start with, Zhejiang Jasan Holding Group's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 7.8%. Probably as a result of this, Zhejiang Jasan Holding Group was able to see a decent growth of 17% over the last five years.

Next, on comparing with the industry net income growth, we found that Zhejiang Jasan Holding Group's growth is quite high when compared to the industry average growth of 1.7% in the same period, which is great to see.

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. What is 603558 worth today? The intrinsic value infographic in our free research report helps visualize whether 603558 is currently mispriced by the market.

Is Zhejiang Jasan Holding Group Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 58% (or a retention ratio of 42%) for Zhejiang Jasan Holding Group suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Zhejiang Jasan Holding Group has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we feel that Zhejiang Jasan Holding Group's performance has been quite good. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. 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. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.