Is China Resources Double-Crane Pharmaceutical Co.,Ltd.'s (SHSE:600062) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Most readers would already be aware that China Resources Double-Crane PharmaceuticalLtd's (SHSE:600062) stock increased significantly by 13% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study China Resources Double-Crane PharmaceuticalLtd's ROE in this article.

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.

Check out our latest analysis for China Resources Double-Crane PharmaceuticalLtd

How Do You 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 China Resources Double-Crane PharmaceuticalLtd is:

11% = CN¥1.3b ÷ CN¥12b (Based on the trailing twelve months to March 2024).

The 'return' is the yearly profit. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.11 in profit.

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. 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.

China Resources Double-Crane PharmaceuticalLtd's Earnings Growth And 11% ROE

At first glance, China Resources Double-Crane PharmaceuticalLtd seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 7.7%. Probably as a result of this, China Resources Double-Crane PharmaceuticalLtd was able to see a decent growth of 5.8% over the last five years.

As a next step, we compared China Resources Double-Crane PharmaceuticalLtd'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 9.2% in the same period.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is China Resources Double-Crane PharmaceuticalLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is China Resources Double-Crane PharmaceuticalLtd Using Its Retained Earnings Effectively?

With a three-year median payout ratio of 30% (implying that the company retains 70% of its profits), it seems that China Resources Double-Crane PharmaceuticalLtd is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Moreover, China Resources Double-Crane PharmaceuticalLtd is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Summary

Overall, we are quite pleased with China Resources Double-Crane PharmaceuticalLtd's performance. 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 a good amount of growth in its earnings. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.