Do Its Financials Have Any Role To Play In Driving GE-Shen Corporation Berhad's (KLSE:GESHEN) Stock Up Recently?

Most readers would already be aware that GE-Shen Corporation Berhad's (KLSE:GESHEN) stock increased significantly by 14% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study GE-Shen Corporation Berhad's ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 GE-Shen Corporation Berhad is:

6.6% = RM13m ÷ RM195m (Based on the trailing twelve months to December 2024).

The 'return' is the profit over the last twelve months. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.07.

See our latest analysis for GE-Shen Corporation Berhad

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.

A Side By Side comparison of GE-Shen Corporation Berhad's Earnings Growth And 6.6% ROE

On the face of it, GE-Shen Corporation Berhad's ROE is not much to talk about. However, its ROE is similar to the industry average of 7.7%, so we won't completely dismiss the company. Moreover, we are quite pleased to see that GE-Shen Corporation Berhad's net income grew significantly at a rate of 39% over the last five years. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared GE-Shen Corporation Berhad's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 7.8% in the same 5-year period.

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 GE-Shen Corporation Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is GE-Shen Corporation Berhad Making Efficient Use Of Its Profits?

GE-Shen Corporation Berhad's significant three-year median payout ratio of 64% (where it is retaining only 36% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Conclusion

In total, it does look like GE-Shen Corporation Berhad has some positive aspects to its business. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. 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 GE-Shen Corporation Berhad's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.