Zijin Mining Group’s (HKG:2899) stock is up by a considerable 18% over the past three months. 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. Specifically, we decided to study Zijin Mining Group’s ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
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How Is ROE Calculated?
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 Zijin Mining Group is:
22% = CN¥26b ÷ CN¥120b (Based on the trailing twelve months to September 2022).
The ‘return’ is the income the business earned over the last year. That means that for every HK$1 worth of shareholders’ equity, the company generated HK$0.22 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. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
A Side By Side comparison of Zijin Mining Group’s Earnings Growth And 22% ROE
To begin with, Zijin Mining Group seems to have a respectable ROE. Especially when compared to the industry average of 12% the company’s ROE looks pretty impressive. Probably as a result of this, Zijin Mining Group was able to see an impressive net income growth of 43% over the last five years. We believe that there might also be other aspects that are positively influencing the company’s earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.
As a next step, we compared Zijin Mining Group’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 29%.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is 2899 fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
Is Zijin Mining Group Making Efficient Use Of Its Profits?
The three-year median payout ratio for Zijin Mining Group is 39%, which is moderately low. The company is retaining the remaining 61%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Zijin Mining Group is reinvesting its earnings efficiently.
Additionally, Zijin Mining Group has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts’ estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 32%. As a result, Zijin Mining Group’s ROE is not expected to change by much either, which we inferred from the analyst estimate of 23% for future ROE.
Conclusion
In total, we are pretty happy with Zijin Mining Group’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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.
