Pan Asian Microvent Tech (Jiangsu)’s (SHSE:688386) stock is up by a considerable 13% over the past week. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Pan Asian Microvent Tech (Jiangsu)’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. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

Check out our latest analysis for Pan Asian Microvent Tech (Jiangsu)

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 Pan Asian Microvent Tech (Jiangsu) is:

13% = CN¥95m ÷ CN¥736m (Based on the trailing twelve months to June 2024).

The ‘return’ is the yearly profit. So, this means that for every CN¥1 of its shareholder’s investments, the company generates a profit of CN¥0.13.

What Is The Relationship Between ROE And Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. 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.

A Side By Side comparison of Pan Asian Microvent Tech (Jiangsu)’s Earnings Growth And 13% ROE

To begin with, Pan Asian Microvent Tech (Jiangsu) seems to have a respectable ROE. Further, the company’s ROE compares quite favorably to the industry average of 6.4%. This probably laid the ground for Pan Asian Microvent Tech (Jiangsu)’s moderate 8.8% net income growth seen over the past five years.

As a next step, we compared Pan Asian Microvent Tech (Jiangsu)’s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 6.2%.

Earnings growth is a huge factor in stock valuation. 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. If you’re wondering about Pan Asian Microvent Tech (Jiangsu)’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Pan Asian Microvent Tech (Jiangsu) Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 53% (or a retention ratio of 47%) for Pan Asian Microvent Tech (Jiangsu) suggests that the company’s growth wasn’t really hampered despite it returning most of its income to its shareholders.

Additionally, Pan Asian Microvent Tech (Jiangsu) has paid dividends over a period of four years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, we are pretty happy with Pan Asian Microvent Tech (Jiangsu)’s performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that’s not too bad. Up till now, we’ve only made a short study of the company’s growth data. To gain further insights into Pan Asian Microvent Tech (Jiangsu)’s past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.