Is McDonald's Holdings Company (Japan), Ltd.'s (TSE:2702) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that McDonald's Holdings Company (Japan)'s (TSE:2702) stock increased significantly by 8.1% over the past month. 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. In this article, we decided to focus on McDonald's Holdings Company (Japan)'s ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for McDonald's Holdings Company (Japan) is:

13% = JP¥34b ÷ JP¥263b (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each ¥1 of shareholders' capital it has, the company made ¥0.13 in profit.

Check out our latest analysis for McDonald's Holdings Company (Japan)

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. 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 McDonald's Holdings Company (Japan)'s Earnings Growth And 13% ROE

At first glance, McDonald's Holdings Company (Japan) seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 11%. This certainly adds some context to McDonald's Holdings Company (Japan)'s moderate 11% net income growth seen over the past five years.

As a next step, we compared McDonald's Holdings Company (Japan)'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 47% in the same period.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about McDonald's Holdings Company (Japan)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is McDonald's Holdings Company (Japan) Using Its Retained Earnings Effectively?

McDonald's Holdings Company (Japan) has a low three-year median payout ratio of 22%, meaning that the company retains the remaining 78% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.

Moreover, McDonald's Holdings Company (Japan) 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.

Conclusion

On the whole, we feel that McDonald's Holdings Company (Japan)'s performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. 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 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.