Jiang Su Yida Chemical Co.,Ltd's (SZSE:300721) Stock is Soaring But Financials Seem Inconsistent: Will The Uptrend Continue?

Most readers would already be aware that Jiang Su Yida ChemicalLtd's (SZSE:300721) stock increased significantly by 20% over the past month. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. In this article, we decided to focus on Jiang Su Yida ChemicalLtd's ROE.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Jiang Su Yida ChemicalLtd is:

1.3% = CN¥17m ÷ CN¥1.2b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.01 in profit.

Check out our latest analysis for Jiang Su Yida ChemicalLtd

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Jiang Su Yida ChemicalLtd's Earnings Growth And 1.3% ROE

As you can see, Jiang Su Yida ChemicalLtd's ROE looks pretty weak. Not just that, even compared to the industry average of 6.2%, the company's ROE is entirely unremarkable. Hence, the flat earnings seen by Jiang Su Yida ChemicalLtd over the past five years could probably be the result of it having a lower ROE.

As a next step, we compared Jiang Su Yida ChemicalLtd's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 4.6% in the same period.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Jiang Su Yida ChemicalLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jiang Su Yida ChemicalLtd Efficiently Re-investing Its Profits?

Jiang Su Yida ChemicalLtd's low three-year median payout ratio of 5.6% (implying that the company keeps94% of its income) should mean that the company is retaining most of its earnings to fuel its growth and this should be reflected in its growth number, but that's not the case.

Additionally, Jiang Su Yida ChemicalLtd has paid dividends over a period of seven years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth.

Conclusion

On the whole, we feel that the performance shown by Jiang Su Yida ChemicalLtd can be open to many interpretations. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. Up till now, we've only made a short study of the company's growth data. You can do your own research on Jiang Su Yida ChemicalLtd and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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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.