Is Anhui Sunhere Pharmaceutical Excipients Co.,Ltd.'s (SZSE:300452) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Anhui Sunhere Pharmaceutical ExcipientsLtd (SZSE:300452) has had a great run on the share market with its stock up by a significant 14% over the last week. 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 Anhui Sunhere Pharmaceutical ExcipientsLtd's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Anhui Sunhere Pharmaceutical ExcipientsLtd

How Is ROE Calculated?

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 Anhui Sunhere Pharmaceutical ExcipientsLtd is:

18% = CN¥170m ÷ CN¥951m (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¥0.18 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. 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.

Anhui Sunhere Pharmaceutical ExcipientsLtd's Earnings Growth And 18% ROE

To start with, Anhui Sunhere Pharmaceutical ExcipientsLtd's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 7.6%. This probably laid the ground for Anhui Sunhere Pharmaceutical ExcipientsLtd's moderate 16% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Anhui Sunhere Pharmaceutical ExcipientsLtd's growth is quite high when compared to the industry average growth of 9.0% in the same period, which is great to see.

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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Anhui Sunhere Pharmaceutical ExcipientsLtd is trading on a high P/E or a low P/E, relative to its industry.

Is Anhui Sunhere Pharmaceutical ExcipientsLtd Using Its Retained Earnings Effectively?

With a three-year median payout ratio of 45% (implying that the company retains 55% of its profits), it seems that Anhui Sunhere Pharmaceutical ExcipientsLtd is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Besides, Anhui Sunhere Pharmaceutical ExcipientsLtd has been paying dividends over a period of eight years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we feel that Anhui Sunhere Pharmaceutical ExcipientsLtd's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.