With its shares down 15% over the past month, it’s easy to overlook Zhaojin’s mining industry (HKG: 1818). However, stock prices are usually determined by a company’s long-term financial data, which in this case looks pretty respectable. Specifically, we decided to study the ROE of Zhaojin Mining Industry in this article.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. Simply put, it is used to assess a company’s profitability against its equity.
Check out our latest analysis for Zhaojin mining industry
How is the ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE of Zhaojin mining industry is:
7.2% = CN ¥ 1.2b ÷ CN ¥ 17b (based on the last twelve months up to March 2021).
The “return” is the income the business has earned over the past year. Another way to think about this is that for every HK $ 1 worth of equity, the company was able to make HK $ 0.07 in profit.
Why is ROE important for profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
Zhaojin Mining Industry Profit Growth and 7.2% ROE
At first glance, Zhaojin Mining Industry’s ROE does not look very promising. However, given that the company’s ROE is similar to the industry average ROE of 8.3%, we can think about it. On the other hand, Zhaojin Mining Industry has recorded moderate growth of its net income of 18% in the past five years. Given the slightly low ROE, it is likely that other aspects are behind this growth. For example, the business has a low payout ratio or is managed efficiently.
Then, comparing the net income growth of Zhaojin mining industry with the industry, we found that the reported growth of the company is similar to the industry average growth rate of 22% over the past year. same period.
Profit growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading towards clear blue waters or if swampy waters are ahead of them. Has the market taken into account the prospects for the future for 1818? You can find out in our latest Intrinsic Value infographic research report.
Is Zhaojin Mining Industry Efficiently Reinvesting Profits?
Zhaojin mining industry has a healthy combination of a moderate three-year median payout ratio of 29% (or retention rate of 71%) and a respectable amount of profit growth as we have seen below- above, which means that the company has made efficient use of its profits.
In addition, Zhaojin Mining Industry has paid dividends over a period of at least ten years, which means the company is very serious about sharing its profits with its shareholders. Estimates from existing analysts suggest that the company’s future payout ratio is expected to drop to 16% over the next three years. As a result, the expected drop in the payout rate of Zhaojin Mining Industry explains the expected increase in the company’s future ROE to 9.0%, over the same period.
Overall, we believe that Zhaojin mining industry certainly has some positive factors to consider. Even despite the low rate of return, the company has shown impressive profit growth by reinvesting heavily in its operations. That said, the latest forecast from industry analysts shows that the company’s earnings growth is expected to slow. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.
When trading stocks or any other investment, use the platform seen by many as the professionals’ gateway to the global market, Interactive brokers. You get the cheapest * trading on stocks, options, futures, forex, bonds and funds from around the world from a single integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.