Is International Medical Center of Biomaterials Processing and Cryostorage Public Joint-stock company's (MCX:GEMA) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that International Medical Center of Biomaterials Processing and Cryostorage's (MCX:GEMA) stock increased significantly by 14% 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. Specifically, we decided to study International Medical Center of Biomaterials Processing and Cryostorage's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for International Medical Center of Biomaterials Processing and Cryostorage

How Do You 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 International Medical Center of Biomaterials Processing and Cryostorage is:

43% = ₽100m ÷ ₽233m (Based on the trailing twelve months to September 2020).

The 'return' is the yearly profit. One way to conceptualize this is that for each RUB1 of shareholders' capital it has, the company made RUB0.43 in profit.

What Has ROE Got To Do With 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 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.

International Medical Center of Biomaterials Processing and Cryostorage's Earnings Growth And 43% ROE

Firstly, we acknowledge that International Medical Center of Biomaterials Processing and Cryostorage has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 9.4% also doesn't go unnoticed by us. This likely paved the way for the modest 19% net income growth seen by International Medical Center of Biomaterials Processing and Cryostorage over the past five years. growth

As a next step, we compared International Medical Center of Biomaterials Processing and Cryostorage's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 8.2%.

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. If you're wondering about International Medical Center of Biomaterials Processing and Cryostorage's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is International Medical Center of Biomaterials Processing and Cryostorage Using Its Retained Earnings Effectively?

Summary

On the whole, we feel that International Medical Center of Biomaterials Processing and Cryostorage's 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 sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. You can see the 2 risks we have identified for International Medical Center of Biomaterials Processing and Cryostorage by visiting our risks dashboard for free on our platform here.

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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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