Is Changzhou Qianhong Biopharma CO.,LTD's (SZSE:002550) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Simply Wall St · 10/18 22:33

Changzhou Qianhong BiopharmaLTD (SZSE:002550) has had a great run on the share market with its stock up by a significant 36% over the last month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Changzhou Qianhong BiopharmaLTD'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Changzhou Qianhong BiopharmaLTD

How Do You Calculate Return On Equity?

Return on equity 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 Changzhou Qianhong BiopharmaLTD is:

12% = CN¥290m ÷ CN¥2.5b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.12 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

Changzhou Qianhong BiopharmaLTD's Earnings Growth And 12% ROE

At first glance, Changzhou Qianhong BiopharmaLTD seems to have a decent ROE. Especially when compared to the industry average of 7.6% the company's ROE looks pretty impressive. This certainly adds some context to Changzhou Qianhong BiopharmaLTD's decent 17% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Changzhou Qianhong BiopharmaLTD's growth is quite high when compared to the industry average growth of 9.0% in the same period, which is great to see.

past-earnings-growth
SZSE:002550 Past Earnings Growth October 18th 2024

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Changzhou Qianhong BiopharmaLTD's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Changzhou Qianhong BiopharmaLTD Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 57% (or a retention ratio of 43%) for Changzhou Qianhong BiopharmaLTD suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Changzhou Qianhong BiopharmaLTD has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we feel that Changzhou Qianhong BiopharmaLTD'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. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.