China Nonferrous Metal Industry's Foreign Engineering and Construction Co.,Ltd.'s (SZSE:000758) Stock Is Going Strong: Have Financials A Role To Play?

Most readers would already be aware that China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's (SZSE:000758) stock increased significantly by 6.1% over the past 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. Particularly, we will be paying attention to China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd

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 China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd is:

7.8% = CN¥700m ÷ CN¥9.0b (Based on the trailing twelve months to March 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.08.

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. 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.

A Side By Side comparison of China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's Earnings Growth And 7.8% ROE

When you first look at it, China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's ROE doesn't look that attractive. However, given that the company's ROE is similar to the average industry ROE of 7.4%, we may spare it some thought. Moreover, we are quite pleased to see that China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's net income grew significantly at a rate of 59% over the last five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's growth is quite high when compared to the industry average growth of 12% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd Making Efficient Use Of Its Profits?

China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd doesn't pay any regular dividends to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Summary

Overall, we feel that China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd certainly does have some positive factors to consider. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business.

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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