Most readers would already be aware that Giant Manufacturing’s (TWSE:9921) stock increased significantly by 17% over the past month. We wonder if and what role the company’s financials play in that price change as a company’s long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Giant Manufacturing’s ROE.
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. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
See our latest analysis for Giant Manufacturing
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 Giant Manufacturing is:
9.8% = NT$3.6b ÷ NT$36b (Based on the trailing twelve months to September 2023).
The ‘return’ is the profit over the last twelve months. One way to conceptualize this is that for each NT$1 of shareholders’ capital it has, the company made NT$0.10 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. 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.
Giant Manufacturing’s Earnings Growth And 9.8% ROE
To start with, Giant Manufacturing’s ROE looks acceptable. Even when compared to the industry average of 10% the company’s ROE looks quite decent. This probably goes some way in explaining Giant Manufacturing’s moderate 12% growth over the past five years amongst other factors.
Next, on comparing with the industry net income growth, we found that Giant Manufacturing’s reported growth was lower than the industry growth of 19% over the last few years, which is not something we like to see.
TWSE:9921 Past Earnings Growth March 14th 2024
Earnings growth is an important metric to consider when valuing a stock. 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. What is 9921 worth today? The intrinsic value infographic in our free research report helps visualize whether 9921 is currently mispriced by the market.
Is Giant Manufacturing Efficiently Re-investing Its Profits?
The high three-year median payout ratio of 61% (or a retention ratio of 39%) for Giant Manufacturing suggests that the company’s growth wasn’t really hampered despite it returning most of its income to its shareholders.
Besides, Giant Manufacturing has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts’ consensus data, we found that the company is expected to keep paying out approximately 50% of its profits over the next three years. As a result, Giant Manufacturing’s ROE is not expected to change by much either, which we inferred from the analyst estimate of 12% for future ROE.
Summary
Overall, we feel that Giant Manufacturing certainly does have some positive factors to consider. Its earnings growth is decent, and the high ROE does contribute to that growth. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. 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.
Valuation is complex, but we’re helping make it simple.
Find out whether Giant Manufacturing is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
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