Could The Market Be Wrong About Inner Mongolia Xingye Silver &Tin Mining Co.,Ltd (SZSE:000426) Given Its Attractive Financial Prospects?

With its stock down 22% over the past three months, it is easy to disregard Inner Mongolia Xingye Silver &Tin MiningLtd (SZSE:000426). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Inner Mongolia Xingye Silver &Tin MiningLtd'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Inner Mongolia Xingye Silver &Tin MiningLtd

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 Inner Mongolia Xingye Silver &Tin MiningLtd is:

23% = CN¥1.7b ÷ CN¥7.3b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.23.

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. 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. 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.

A Side By Side comparison of Inner Mongolia Xingye Silver &Tin MiningLtd's Earnings Growth And 23% ROE

To begin with, Inner Mongolia Xingye Silver &Tin MiningLtd has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 7.7% also doesn't go unnoticed by us. So, the substantial 75% net income growth seen by Inner Mongolia Xingye Silver &Tin MiningLtd over the past five years isn't overly surprising.

We then compared Inner Mongolia Xingye Silver &Tin MiningLtd'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 10% 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. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Inner Mongolia Xingye Silver &Tin MiningLtd is trading on a high P/E or a low P/E, relative to its industry.

Is Inner Mongolia Xingye Silver &Tin MiningLtd Efficiently Re-investing Its Profits?

Inner Mongolia Xingye Silver &Tin MiningLtd has a really low three-year median payout ratio of 12%, meaning that it has the remaining 88% left over to reinvest into its business. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Besides, Inner Mongolia Xingye Silver &Tin MiningLtd 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

On the whole, we feel that Inner Mongolia Xingye Silver &Tin MiningLtd's performance has been quite good. 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. 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. 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.