HYUNDAI BIOLAND Co.,Ltd's (KOSDAQ:052260) Financial Prospects Don't Look Very Positive: Could It Mean A Stock Price Drop In The Future?

HYUNDAI BIOLANDLtd's (KOSDAQ:052260) stock is up by 3.3% over the past week. However, its weak financial performance indicators makes us a bit doubtful if that trend could continue. Particularly, we will be paying attention to HYUNDAI BIOLANDLtd's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for HYUNDAI BIOLANDLtd

How Is ROE Calculated?

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 HYUNDAI BIOLANDLtd is:

3.6% = ₩5.5b ÷ ₩154b (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. So, this means that for every ₩1 of its shareholder's investments, the company generates a profit of ₩0.04.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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 HYUNDAI BIOLANDLtd's Earnings Growth And 3.6% ROE

It is hard to argue that HYUNDAI BIOLANDLtd's ROE is much good in and of itself. An industry comparison shows that the company's ROE is not much different from the industry average of 4.4% either. Therefore, it might not be wrong to say that the five year net income decline of 2.8% seen by HYUNDAI BIOLANDLtd was possibly a result of the disappointing ROE.

As a next step, we compared HYUNDAI BIOLANDLtd's performance with the industry and discovered the industry has shrunk at a rate of 5.2% in the same period meaning that the company has been shrinking its earnings at a rate lower than the industry. This does offer shareholders some relief

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is HYUNDAI BIOLANDLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is HYUNDAI BIOLANDLtd Making Efficient Use Of Its Profits?

HYUNDAI BIOLANDLtd's declining earnings is not surprising given how the company is spending most of its profits in paying dividends, judging by its three-year median payout ratio of 71% (or a retention ratio of 29%). The business is only left with a small pool of capital to reinvest - A vicious cycle that doesn't benefit the company in the long-run. Our risks dashboard should have the 3 risks we have identified for HYUNDAI BIOLANDLtd.

In addition, HYUNDAI BIOLANDLtd has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.

Summary

On the whole, HYUNDAI BIOLANDLtd's performance is quite a big let-down. Because the company is not reinvesting much into the business, and given the low ROE, it's not surprising to see the lack or absence of growth in its earnings. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into HYUNDAI BIOLANDLtd's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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