Is King Yuan Electronics Co., Ltd.'s (TWSE:2449) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that King Yuan Electronics' (TWSE:2449) stock increased significantly by 17% over the past three months. 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. Specifically, we decided to study King Yuan Electronics' ROE in this article.

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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for King Yuan Electronics

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for King Yuan Electronics is:

15% = NT$6.0b ÷ NT$40b (Based on the trailing twelve months to December 2023).

The 'return' is the profit over the last twelve months. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.15 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 King Yuan Electronics' Earnings Growth And 15% ROE

At first glance, King Yuan Electronics seems to have a decent ROE. Especially when compared to the industry average of 9.6% the company's ROE looks pretty impressive. This certainly adds some context to King Yuan Electronics' exceptional 22% net income growth seen over the past five years. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared King Yuan Electronics' 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 17% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for 2449? You can find out in our latest intrinsic value infographic research report.

Is King Yuan Electronics Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 67% (implying that it keeps only 33% of profits) for King Yuan Electronics suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, King Yuan Electronics has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 55%. Regardless, the future ROE for King Yuan Electronics is predicted to rise to 18% despite there being not much change expected in its payout ratio.

Conclusion

On the whole, we feel that King Yuan Electronics' performance has been quite good. 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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.