Is Sino-Agri Leading Biosciences Co.,Ltd's (SHSE:603970) Latest Stock Performance A Reflection Of Its Financial Health?

Sino-Agri Leading BiosciencesLtd (SHSE:603970) has had a great run on the share market with its stock up by a significant 35% over the last three months. 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. In this article, we decided to focus on Sino-Agri Leading BiosciencesLtd'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.

View our latest analysis for Sino-Agri Leading BiosciencesLtd

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 Sino-Agri Leading BiosciencesLtd is:

14% = CN¥233m ÷ CN¥1.7b (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¥0.14 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Sino-Agri Leading BiosciencesLtd's Earnings Growth And 14% ROE

To begin with, Sino-Agri Leading BiosciencesLtd seems to have a respectable ROE. Especially when compared to the industry average of 6.2% the company's ROE looks pretty impressive. This certainly adds some context to Sino-Agri Leading BiosciencesLtd's decent 15% net income growth seen over the past five years.

We then compared Sino-Agri Leading BiosciencesLtd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 4.9% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Sino-Agri Leading BiosciencesLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Sino-Agri Leading BiosciencesLtd Using Its Retained Earnings Effectively?

Sino-Agri Leading BiosciencesLtd has a three-year median payout ratio of 47%, which implies that it retains the remaining 53% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Besides, Sino-Agri Leading BiosciencesLtd has been paying dividends over a period of six years. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we are quite pleased with Sino-Agri Leading BiosciencesLtd's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.