Is FuJian YanJing HuiQuan Brewery Co.,Ltd's (SHSE:600573) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

FuJian YanJing HuiQuan BreweryLtd (SHSE:600573) has had a great run on the share market with its stock up by a significant 11% over the last week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on FuJian YanJing HuiQuan BreweryLtd's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for FuJian YanJing HuiQuan BreweryLtd

How Is ROE Calculated?

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 FuJian YanJing HuiQuan BreweryLtd is:

4.2% = CN¥53m ÷ CN¥1.3b (Based on the trailing twelve months to March 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.04 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

FuJian YanJing HuiQuan BreweryLtd's Earnings Growth And 4.2% ROE

As you can see, FuJian YanJing HuiQuan BreweryLtd's ROE looks pretty weak. Even when compared to the industry average of 16%, the ROE figure is pretty disappointing. In spite of this, FuJian YanJing HuiQuan BreweryLtd was able to grow its net income considerably, at a rate of 20% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared FuJian YanJing HuiQuan BreweryLtd'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 15%.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is FuJian YanJing HuiQuan BreweryLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is FuJian YanJing HuiQuan BreweryLtd Efficiently Re-investing Its Profits?

The three-year median payout ratio for FuJian YanJing HuiQuan BreweryLtd is 28%, which is moderately low. The company is retaining the remaining 72%. So it seems that FuJian YanJing HuiQuan BreweryLtd is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Besides, FuJian YanJing HuiQuan BreweryLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, it does look like FuJian YanJing HuiQuan BreweryLtd 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.

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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