Are Strong Financial Prospects The Force That Is Driving The Momentum In Cheryong Electric Co.,Ltd.'s KOSDAQ:033100) Stock?

Cheryong ElectricLtd's (KOSDAQ:033100) stock is up by a considerable 12% over the past 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 Cheryong ElectricLtd's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

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 Cheryong ElectricLtd is:

29% = ₩61b ÷ ₩210b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each ₩1 of shareholders' capital it has, the company made ₩0.29 in profit.

View our latest analysis for Cheryong ElectricLtd

Why Is ROE Important For 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.

Cheryong ElectricLtd's Earnings Growth And 29% ROE

First thing first, we like that Cheryong ElectricLtd has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 8.7% also doesn't go unnoticed by us. As a result, Cheryong ElectricLtd's exceptional 60% net income growth seen over the past five years, doesn't come as a surprise.

We then compared Cheryong ElectricLtd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 26% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Cheryong ElectricLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Cheryong ElectricLtd Efficiently Re-investing Its Profits?

Summary

Overall, we are quite pleased with Cheryong ElectricLtd's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings.

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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.