KineMaster Corporation's (KOSDAQ:139670) Stock Is Going Strong: Is the Market Following Fundamentals?

Most readers would already be aware that KineMaster's (KOSDAQ:139670) stock increased significantly by 13% over the past month. 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. In this article, we decided to focus on KineMaster'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.

Check out our latest analysis for KineMaster

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for KineMaster is:

17% = ₩2.4b ÷ ₩14b (Based on the trailing twelve months to June 2020).

The 'return' is the amount earned after tax over the last twelve months. That means that for every ₩1 worth of shareholders' equity, the company generated ₩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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of KineMaster's Earnings Growth And 17% ROE

To begin with, KineMaster seems to have a respectable ROE. Especially when compared to the industry average of 8.0% the company's ROE looks pretty impressive. Probably as a result of this, KineMaster was able to see a decent growth of 13% over the last five years.

Next, on comparing with the industry net income growth, we found that KineMaster's growth is quite high when compared to the industry average growth of 4.0% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about KineMaster's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is KineMaster Efficiently Re-investing Its Profits?

Summary

In total, we are pretty happy with KineMaster'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. 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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