Daihan Pharmaceutical Co.,Ltd.'s (KOSDAQ:023910) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Most readers would already know that Daihan PharmaceuticalLtd's (KOSDAQ:023910) stock increased by 4.2% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Daihan PharmaceuticalLtd'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Daihan PharmaceuticalLtd

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Daihan PharmaceuticalLtd is:

14% = ₩26b ÷ ₩183b (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.14 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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.

Daihan PharmaceuticalLtd's Earnings Growth And 14% ROE

To start with, Daihan PharmaceuticalLtd's ROE looks acceptable. Especially when compared to the industry average of 7.6% the company's ROE looks pretty impressive. This probably laid the ground for Daihan PharmaceuticalLtd's moderate 14% net income growth seen over the past five years.

Next, on comparing Daihan PharmaceuticalLtd's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 14% in the same period.

Earnings growth is an important metric to consider when valuing a stock. 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 Daihan PharmaceuticalLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Daihan PharmaceuticalLtd Using Its Retained Earnings Effectively?

Daihan PharmaceuticalLtd doesn't pay any dividend, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

Summary

Overall, we are quite pleased with Daihan PharmaceuticalLtd's performance. 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 sizeable growth in its earnings.

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This article by Simply Wall St is general in nature. 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.
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