Is Fulin Plastic Industry (Cayman) Holding Co., Ltd.'s (TPE:1341) Stock's Recent Performance A Reflection Of Its Financial Health?

Most readers would already know that Fulin Plastic Industry (Cayman) Holding's (TPE:1341) stock increased by 3.9% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Fulin Plastic Industry (Cayman) Holding's ROE.

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.

See our latest analysis for Fulin Plastic Industry (Cayman) Holding

How To 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 Fulin Plastic Industry (Cayman) Holding is:

24% = NT$272m ÷ NT$1.1b (Based on the trailing twelve months to September 2020).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each NT$1 of shareholders' capital it has, the company made NT$0.24 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.

Fulin Plastic Industry (Cayman) Holding's Earnings Growth And 24% ROE

To begin with, Fulin Plastic Industry (Cayman) Holding has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 8.2% also doesn't go unnoticed by us. Under the circumstances, Fulin Plastic Industry (Cayman) Holding's considerable five year net income growth of 32% was to be expected.

We then compared Fulin Plastic Industry (Cayman) Holding'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 1.7% in the same 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Fulin Plastic Industry (Cayman) Holding is trading on a high P/E or a low P/E, relative to its industry.

Is Fulin Plastic Industry (Cayman) Holding Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 75% (implying that it keeps only 25% of profits) for Fulin Plastic Industry (Cayman) Holding suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Along with seeing a growth in earnings, Fulin Plastic Industry (Cayman) Holding only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Summary

In total, we are pretty happy with Fulin Plastic Industry (Cayman) Holding's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Fulin Plastic Industry (Cayman) Holding's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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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