Is Chugai Mining Co., Ltd.'s (TSE:1491) Latest Stock Performance A Reflection Of Its Financial Health?

Chugai Mining's (TSE:1491) stock is up by a considerable 142% over the past three months. 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 Chugai Mining's ROE.

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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To 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 Chugai Mining is:

15% = JP¥1.3b ÷ JP¥8.3b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each ¥1 of shareholders' capital it has, the company made ¥0.15 in profit.

See our latest analysis for Chugai Mining

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. 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.

A Side By Side comparison of Chugai Mining's Earnings Growth And 15% ROE

To start with, Chugai Mining's ROE looks acceptable. On comparing with the average industry ROE of 5.9% the company's ROE looks pretty remarkable. Probably as a result of this, Chugai Mining was able to see an impressive net income growth of 44% over the last five years. However, there could also be other causes behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Chugai Mining's growth is quite high when compared to the industry average growth of 17% in the same period, which is great to see.

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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Chugai Mining's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Chugai Mining Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 50% (implying that it keeps only 50% of profits) for Chugai Mining suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, Chugai Mining has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, we are pretty happy with Chugai Mining's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Chugai Mining and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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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.