With its stock down 23% over the past three months, it is easy to disregard Pan Asian Microvent Tech (Jiangsu) (SHSE:688386). However, the company’s fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Pan Asian Microvent Tech (Jiangsu)’s ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company’s success at turning shareholder investments into profits.

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

How Do You Calculate Return On Equity?

ROE 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¥88m ÷ CN¥676m (Based on the trailing twelve months to December 2023).

The ‘return’ is the income the business earned over the last year. That means that for every CN¥1 worth of shareholders’ equity, the company generated CN¥0.13 in profit.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. 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.

Pan Asian Microvent Tech (Jiangsu)’s Earnings Growth And 13% ROE

To start with, Pan Asian Microvent Tech (Jiangsu)’s ROE looks acceptable. Especially when compared to the industry average of 7.1% the company’s ROE looks pretty impressive. Probably as a result of this, Pan Asian Microvent Tech (Jiangsu) was able to see a decent growth of 5.7% over the last five years.

We then compared Pan Asian Microvent Tech (Jiangsu)’s net income growth with the industry and found that the company’s growth figure is lower than the average industry growth rate of 11% in the same 5-year period, which is a bit concerning.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock’s future looks promising or ominous. 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) Using Its Retained Earnings Effectively?

Pan Asian Microvent Tech (Jiangsu) has a significant three-year median payout ratio of 53%, meaning that it is left with only 47% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

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

Summary

Overall, we feel that Pan Asian Microvent Tech (Jiangsu) certainly does have some positive factors to consider. The company has grown its earnings moderately as previously discussed. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be quite low. Until now, we have only just grazed the surface of the company’s past performance by looking at the company’s fundamentals. You can do your own research on Pan Asian Microvent Tech (Jiangsu) and see how it has performed in the past by looking at this FREE detailed graph 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.