Qinghai Salt Lake Industry Co.,Ltd's (SZSE:000792) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Most readers would already be aware that Qinghai Salt Lake IndustryLtd's (SZSE:000792) stock increased significantly by 34% over the past 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. Particularly, we will be paying attention to Qinghai Salt Lake IndustryLtd's ROE today.

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.

See our latest analysis for Qinghai Salt Lake IndustryLtd

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 Qinghai Salt Lake IndustryLtd is:

15% = CN¥5.7b ÷ CN¥38b (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¥0.15 in profit.

What Has ROE Got To Do With 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. 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.

Qinghai Salt Lake IndustryLtd's Earnings Growth And 15% ROE

At first glance, Qinghai Salt Lake IndustryLtd seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 6.2%. Probably as a result of this, Qinghai Salt Lake IndustryLtd was able to see an impressive net income growth of 63% over the last five years. However, there could also be other causes behind this growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Qinghai Salt Lake IndustryLtd's growth is quite high when compared to the industry average growth of 4.9% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is 000792 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Qinghai Salt Lake IndustryLtd Making Efficient Use Of Its Profits?

Given that Qinghai Salt Lake IndustryLtd doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

On the whole, we feel that Qinghai Salt Lake IndustryLtd's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.