Tianjin Pharmaceutical Da Ren Tang Group's (SGX:T14) stock is up by a considerable 5.1% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Tianjin Pharmaceutical Da Ren Tang Group's ROE in this article.

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 Tianjin Pharmaceutical Da Ren Tang Group

How Do You 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 Tianjin Pharmaceutical Da Ren Tang Group is:

12% = CN¥856m ÷ CN¥6.9b (Based on the trailing twelve months to September 2022).

The 'return' is the amount earned after tax over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.12 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Tianjin Pharmaceutical Da Ren Tang Group's Earnings Growth And 12% ROE

At first glance, Tianjin Pharmaceutical Da Ren Tang Group seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 9.3%. Probably as a result of this, Tianjin Pharmaceutical Da Ren Tang Group was able to see a decent growth of 12% over the last five years.

As a next step, we compared Tianjin Pharmaceutical Da Ren Tang Group's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 11% in the same period.

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 Tianjin Pharmaceutical Da Ren Tang Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.