Inhwa Precision Co., Ltd (KOSDAQ:101930) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

Most readers would already be aware that Inhwa Precision's (KOSDAQ:101930) stock increased significantly by 49% over the past three months. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. In this article, we decided to focus on Inhwa Precision'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

How Do You 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 Inhwa Precision is:

5.2% = ₩16b ÷ ₩309b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.05 in profit.

See our latest analysis for Inhwa Precision

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.

Inhwa Precision's Earnings Growth And 5.2% ROE

When you first look at it, Inhwa Precision's ROE doesn't look that attractive. Yet, a closer study shows that the company's ROE is similar to the industry average of 5.9%. Having said that, Inhwa Precision's net income growth over the past five years is more or less flat. Remember, the company's ROE is not particularly great to begin with. So that could also be one of the reasons behind the company's flat growth in earnings.

As a next step, we compared Inhwa Precision's net income growth with the industry and discovered that the industry saw an average growth of 19% in the same period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is Inhwa Precision fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Inhwa Precision Efficiently Re-investing Its Profits?

Inhwa Precision has a low three-year median payout ratio of 17% (or a retention ratio of 83%) but the negligible earnings growth number doesn't reflect this as high growth usually follows high profit retention.

Only recently, Inhwa Precision started paying a dividend. This means that the management might have concluded that its shareholders prefer dividends over earnings growth.

Summary

On the whole, we feel that the performance shown by Inhwa Precision can be open to many interpretations. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Inhwa Precision and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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.