Should You Be Worried About Jinxin Fertility Group Limiteds (HKG:1951) 4.1% Return On Equity? – Simply Wall St

Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). By way of learning-by-doing, well look at ROE to gain a better understanding of Jinxin Fertility Group Limited (HKG:1951).

Our data shows Jinxin Fertility Group has a return on equity of 4.1% for the last year. That means that for every HK$1 worth of shareholders equity, it generated HK$0.04 in profit.

See our latest analysis for Jinxin Fertility Group

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) Shareholders Equity

Or for Jinxin Fertility Group:

4.1% = CN282m CN6.9b (Based on the trailing twelve months to June 2019.)

Most readers would understand what net profit is, but its worth explaining the concept of shareholders equity. It is all earnings retained by the company, plus any capital paid in by shareholders. Shareholders equity can be calculated by subtracting the total liabilities of the company from the total assets of the company.

Return on Equity measures a companys profitability against the profit it has kept for the business (plus any capital injections). The return is the amount earned after tax over the last twelve months. That means that the higher the ROE, the more profitable the company is. So, all else being equal, a high ROE is better than a low one. Clearly, then, one can use ROE to compare different companies.

By comparing a companys ROE with its industry average, we can get a quick measure of how good it is. Importantly, this is far from a perfect measure, because companies differ significantly within the same industry classification. As is clear from the image below, Jinxin Fertility Group has a lower ROE than the average (7.9%) in the Healthcare industry.

Thats not what we like to see. Wed prefer see an ROE above the industry average, but it might not matter if the company is undervalued. Nonetheless, it might be wise to check if insiders have been selling.

Most companies need money from somewhere to grow their profits. That cash can come from retained earnings, issuing new shares (equity), or debt. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the use of debt will improve the returns, but will not change the equity. That will make the ROE look better than if no debt was used.

Shareholders will be pleased to learn that Jinxin Fertility Group has not one iota of net debt! So although its ROE isnt that impressive, we shouldnt judge it harshly on that metric, because it didnt use debt. After all, when a company has a strong balance sheet, it can often find ways to invest in growth, even if it takes some time.

Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. A company that can achieve a high return on equity without debt could be considered a high quality business. If two companies have around the same level of debt to equity, and one has a higher ROE, Id generally prefer the one with higher ROE.

Having said that, while ROE is a useful indicator of business quality, youll have to look at a whole range of factors to determine the right price to buy a stock. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So you might want to take a peek at this data-rich interactive graph of forecasts for the company.

If you would prefer check out another company one with potentially superior financials then do not miss thisfree list of interesting companies, that have HIGH return on equity and low debt.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

More:
Should You Be Worried About Jinxin Fertility Group Limiteds (HKG:1951) 4.1% Return On Equity? - Simply Wall St

Related Post

Comments are closed.