Tianjin Ringpu Bio-Technology Co.,Ltd.'s (SZSE:300119) Stock Has Fared Decently: Is the Market Following Strong Financials?

Tianjin Ringpu Bio-TechnologyLtd's (SZSE:300119) stock up by 5.4% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Tianjin Ringpu Bio-TechnologyLtd's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Tianjin Ringpu Bio-TechnologyLtd

How Do You Calculate Return On Equity?

Return on equity 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 Tianjin Ringpu Bio-TechnologyLtd is:

9.7% = CN¥480m ÷ CN¥5.0b (Based on the trailing twelve months to September 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¥0.10.

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. 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.

Tianjin Ringpu Bio-TechnologyLtd's Earnings Growth And 9.7% ROE

At first glance, Tianjin Ringpu Bio-TechnologyLtd's ROE doesn't look very promising. However, the fact that the its ROE is quite higher to the industry average of 7.7% doesn't go unnoticed by us. Consequently, this likely laid the ground for the decent growth of 11% seen over the past five years by Tianjin Ringpu Bio-TechnologyLtd. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. So there might well be other reasons for the earnings to grow. E.g the company has a low payout ratio or could belong to a high growth industry.

We then compared Tianjin Ringpu Bio-TechnologyLtd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 9.1% in the same 5-year 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). This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for 300119? You can find out in our latest intrinsic value infographic research report.

Is Tianjin Ringpu Bio-TechnologyLtd Using Its Retained Earnings Effectively?

Tianjin Ringpu Bio-TechnologyLtd has a three-year median payout ratio of 40%, which implies that it retains the remaining 60% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Besides, Tianjin Ringpu Bio-TechnologyLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 42%. Accordingly, forecasts suggest that Tianjin Ringpu Bio-TechnologyLtd's future ROE will be 11% which is again, similar to the current ROE.

Conclusion

On the whole, we feel that Tianjin Ringpu Bio-TechnologyLtd's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business at a moderate rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.