Is Shenzhen Mindray Bio-Medical Electronics Co., Ltd.'s (SZSE:300760) Recent Performance Tethered To Its Attractive Financial Prospects?

Most readers would already know that Shenzhen Mindray Bio-Medical Electronics' (SZSE:300760) stock increased by 9.3% over the past three months. 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 Shenzhen Mindray Bio-Medical Electronics' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Shenzhen Mindray Bio-Medical Electronics

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 Shenzhen Mindray Bio-Medical Electronics is:

30% = CN¥12b ÷ CN¥42b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.30 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. 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.

Shenzhen Mindray Bio-Medical Electronics' Earnings Growth And 30% ROE

First thing first, we like that Shenzhen Mindray Bio-Medical Electronics has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 7.1% which is quite remarkable. Probably as a result of this, Shenzhen Mindray Bio-Medical Electronics was able to see a decent net income growth of 19% over the last five years.

As a next step, we compared Shenzhen Mindray Bio-Medical Electronics' 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 6.1%.

Earnings growth is a huge factor in stock valuation. 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. Has the market priced in the future outlook for 300760? You can find out in our latest intrinsic value infographic research report.

Is Shenzhen Mindray Bio-Medical Electronics Using Its Retained Earnings Effectively?

While Shenzhen Mindray Bio-Medical Electronics has a three-year median payout ratio of 54% (which means it retains 46% 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, Shenzhen Mindray Bio-Medical Electronics has been paying dividends over a period of six years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 62%. Accordingly, forecasts suggest that Shenzhen Mindray Bio-Medical Electronics' future ROE will be 33% which is again, similar to the current ROE.

Conclusion

On the whole, we feel that Shenzhen Mindray Bio-Medical Electronics' 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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.