Is Ampoc Far-East Co., Ltd.'s (TWSE:2493) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Most readers would already be aware that Ampoc Far-East's (TWSE:2493) stock increased significantly by 31% 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. Particularly, we will be paying attention to Ampoc Far-East's ROE today.

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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Ampoc Far-East

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 Ampoc Far-East is:

23% = NT$690m ÷ NT$3.0b (Based on the trailing twelve months to December 2023).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each NT$1 of shareholders' capital it has, the company made NT$0.23 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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

Ampoc Far-East's Earnings Growth And 23% ROE

First thing first, we like that Ampoc Far-East has an impressive ROE. Secondly, even when compared to the industry average of 9.6% the company's ROE is quite impressive. Under the circumstances, Ampoc Far-East's considerable five year net income growth of 20% was to be expected.

Next, on comparing with the industry net income growth, we found that Ampoc Far-East's growth is quite high when compared to the industry average growth of 17% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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 2493 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Ampoc Far-East Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 78% (implying that it keeps only 22% of profits) for Ampoc Far-East suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, Ampoc Far-East has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we feel that Ampoc Far-East's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Up till now, we've only made a short study of the company's growth data. To gain further insights into Ampoc Far-East's past profit growth, check out this visualization of past earnings, revenue and cash flows.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.