Is Inner Mongolia ERDOS Resources Co.,Ltd.'s (SHSE:600295) Stock's Recent Performance A Reflection Of Its Financial Health?

Inner Mongolia ERDOS ResourcesLtd's (SHSE:600295) stock up by 2.8% over the past month. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Particularly, we will be paying attention to Inner Mongolia ERDOS ResourcesLtd's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Inner Mongolia ERDOS ResourcesLtd is:

10.0% = CN¥2.6b ÷ CN¥26b (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax 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¥0.10 in profit.

See our latest analysis for Inner Mongolia ERDOS ResourcesLtd

What Is The Relationship Between ROE And 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 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.

Inner Mongolia ERDOS ResourcesLtd's Earnings Growth And 10.0% ROE

On the face of it, Inner Mongolia ERDOS ResourcesLtd's ROE is not much to talk about. However, the fact that the its ROE is quite higher to the industry average of 7.5% doesn't go unnoticed by us. Consequently, this likely laid the ground for the decent growth of 12% seen over the past five years by Inner Mongolia ERDOS ResourcesLtd. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Hence there might be some other aspects that are causing earnings to grow. E.g the company has a low payout ratio or could belong to a high growth industry.

As a next step, we compared Inner Mongolia ERDOS ResourcesLtd's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 10% in the same period.

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). This then helps them determine if the stock is placed for a bright or bleak future. Is 600295 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Inner Mongolia ERDOS ResourcesLtd Making Efficient Use Of Its Profits?

Inner Mongolia ERDOS ResourcesLtd has a healthy combination of a moderate three-year median payout ratio of 47% (or a retention ratio of 53%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Besides, Inner Mongolia ERDOS ResourcesLtd 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

Overall, we are quite pleased with Inner Mongolia ERDOS ResourcesLtd's performance. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.