Is Changjiang Publishing & Media Co.,Ltd's (SHSE:600757) Recent Stock Performance Influenced By Its Financials In Any Way?

Changjiang Publishing & MediaLtd's (SHSE:600757) stock is up by 6.1% over the past three months. 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. In this article, we decided to focus on Changjiang Publishing & MediaLtd'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Changjiang Publishing & MediaLtd

How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Changjiang Publishing & MediaLtd is:

9.8% = CN¥899m ÷ CN¥9.2b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.10 in profit.

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. 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.

Changjiang Publishing & MediaLtd's Earnings Growth And 9.8% ROE

On the face of it, Changjiang Publishing & MediaLtd's ROE is not much to talk about. However, the fact that the company's ROE is higher than the average industry ROE of 5.4%, is definitely interesting. Yet, Changjiang Publishing & MediaLtd has posted measly growth of 3.4% over the past five years. Remember, the company's ROE is quite low to begin with, just that it is higher than the industry average. So that could be one of the factors that are causing earnings growth to stay low.

Next, on comparing Changjiang Publishing & MediaLtd's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 3.4% over the last few years.

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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Changjiang Publishing & MediaLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Changjiang Publishing & MediaLtd Efficiently Re-investing Its Profits?

Changjiang Publishing & MediaLtd has a three-year median payout ratio of 53% (implying that it keeps only 47% of its profits), meaning that it pays out most of its profits to shareholders as dividends, and as a result, the company has seen low earnings growth.

Additionally, Changjiang Publishing & MediaLtd has paid dividends over a period of nine 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 do feel that Changjiang Publishing & MediaLtd has some positive attributes. Its earnings have grown respectably as we saw earlier, which was likely achieved by the company reinvesting its earnings at a decent rate of return. Still, its earnings retention is quite low, so we wonder if the company's growth could be higher, were it to pay out less dividends and retain more of its profits? While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 1 risk we have identified for Changjiang Publishing & MediaLtd visit our risks dashboard for free.

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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.