Are Strong Financial Prospects The Force That Is Driving The Momentum In ASICS Corporation's TSE:7936) Stock?

Most readers would already be aware that ASICS' (TSE:7936) stock increased significantly by 15% 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 ASICS' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How To 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 ASICS is:

31% = JP¥75b ÷ JP¥243b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. That means that for every ¥1 worth of shareholders' equity, the company generated ¥0.31 in profit.

Check out our latest analysis for ASICS

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

A Side By Side comparison of ASICS' Earnings Growth And 31% ROE

First thing first, we like that ASICS has an impressive ROE. Secondly, even when compared to the industry average of 5.8% the company's ROE is quite impressive. So, the substantial 60% net income growth seen by ASICS over the past five years isn't overly surprising.

As a next step, we compared ASICS' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 23%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you're wondering about ASICS''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is ASICS Efficiently Re-investing Its Profits?

ASICS has a three-year median payout ratio of 27% (where it is retaining 73% of its income) which is not too low or not too high. So it seems that ASICS is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Moreover, ASICS 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 ASICS' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.

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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.