Japan Cash Machine Co., Ltd.'s (TSE:6418) Stock Is Going Strong: Is the Market Following Fundamentals?

Simply Wall St · 04/15 05:27

Japan Cash Machine's (TSE:6418) stock is up by a considerable 18% over the past week. 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 Japan Cash Machine's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

We've discovered 1 warning sign about Japan Cash Machine. View them for free.

How To 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 Japan Cash Machine is:

19% = JP¥5.7b ÷ JP¥30b (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. Another way to think of that is that for every ¥1 worth of equity, the company was able to earn ¥0.19 in profit.

Check out our latest analysis for Japan Cash Machine

Why Is ROE Important For 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Japan Cash Machine's Earnings Growth And 19% ROE

To begin with, Japan Cash Machine seems to have a respectable ROE. On comparing with the average industry ROE of 8.2% the company's ROE looks pretty remarkable. This certainly adds some context to Japan Cash Machine's exceptional 62% net income growth seen over the past five years. We reckon that there could also be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Japan Cash Machine'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 15% in the same 5-year period.

past-earnings-growth
TSE:6418 Past Earnings Growth April 15th 2025

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. This then helps them determine if the stock is placed for a bright or bleak future. Is Japan Cash Machine fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Japan Cash Machine Efficiently Re-investing Its Profits?

Japan Cash Machine has a really low three-year median payout ratio of 15%, meaning that it has the remaining 85% left over to reinvest into its business. So it looks like Japan Cash Machine is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Japan Cash Machine is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

Overall, we are quite pleased with Japan Cash Machine's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. To know the 1 risk we have identified for Japan Cash Machine visit our risks dashboard for free.