Korea Aerospace Industries, Ltd.'s (KRX:047810) Stock Been Rising: Are Strong Financials Guiding The Market?

Korea Aerospace Industries' (KRX:047810) stock is up by 4.2% over the past month. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on Korea Aerospace Industries' 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Korea Aerospace Industries

How To 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 Korea Aerospace Industries is:

17% = ₩287b ÷ ₩1.7t (Based on the trailing twelve months to September 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 ₩0.17 in profit.

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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Korea Aerospace Industries' Earnings Growth And 17% ROE

To start with, Korea Aerospace Industries' ROE looks acceptable. Further, the company's ROE is similar to the industry average of 17%. This probably goes some way in explaining Korea Aerospace Industries' moderate 11% growth over the past five years amongst other factors.

As a next step, we compared Korea Aerospace Industries' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 25% in the same period.

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. What is A047810 worth today? The intrinsic value infographic in our free research report helps visualize whether A047810 is currently mispriced by the market.

Is Korea Aerospace Industries Efficiently Re-investing Its Profits?

Korea Aerospace Industries 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.

Besides, Korea Aerospace Industries has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 18% of its profits over the next three years. Accordingly, forecasts suggest that Korea Aerospace Industries' future ROE will be 17% which is again, similar to the current ROE.

Conclusion

On the whole, we feel that Korea Aerospace Industries' performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.