Are Strong Financial Prospects The Force That Is Driving The Momentum In KIMURA KOHKI Co.,Ltd.'s TSE:6231) Stock?

KIMURA KOHKILtd's (TSE:6231) stock is up by a considerable 23% 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. Specifically, we decided to study KIMURA KOHKILtd'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How To Calculate Return On Equity?

ROE 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 KIMURA KOHKILtd is:

22% = JP¥2.6b ÷ JP¥12b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. Another way to think of that is that for every ¥1 worth of equity, the company was able to earn ¥0.22 in profit.

See our latest analysis for KIMURA KOHKILtd

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

KIMURA KOHKILtd's Earnings Growth And 22% ROE

First thing first, we like that KIMURA KOHKILtd has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 7.2% which is quite remarkable. As a result, KIMURA KOHKILtd's exceptional 29% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that KIMURA KOHKILtd's growth is quite high when compared to the industry average growth of 12% 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. This then helps them determine if the stock is placed for a bright or bleak future. Is KIMURA KOHKILtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is KIMURA KOHKILtd Using Its Retained Earnings Effectively?

Summary

Overall, we are quite pleased with KIMURA KOHKILtd's performance. 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.