Yahoo Finance Is Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München's (ETR:MUV2) Latest Stock Performance Being Led By Its Strong Fundamentals?
Most readers would already know that Münchener Rückversicherungs-Gesellschaft in München's (ETR:MUV2) stock increased by 5.6% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on Münchener Rückversicherungs-Gesellschaft in München'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for Münchener Rückversicherungs-Gesellschaft in München
How To 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 Münchener Rückversicherungs-Gesellschaft in München is:
15% = €4.6b ÷ €30b (Based on the trailing twelve months to December 2023).
The 'return' is the yearly profit. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.15 in profit.
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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.
A Side By Side comparison of Münchener Rückversicherungs-Gesellschaft in München's Earnings Growth And 15% ROE
At first glance, Münchener Rückversicherungs-Gesellschaft in München seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 14%. This certainly adds some context to Münchener Rückversicherungs-Gesellschaft in München's moderate 16% net income growth seen over the past five years.
We then compared Münchener Rückversicherungs-Gesellschaft in München's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 0.9% in the same 5-year period.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Münchener Rückversicherungs-Gesellschaft in München fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Münchener Rückversicherungs-Gesellschaft in München Making Efficient Use Of Its Profits?
While Münchener Rückversicherungs-Gesellschaft in München has a three-year median payout ratio of 53% (which means it retains 47% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.
Besides, Münchener Rückversicherungs-Gesellschaft in München has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 39% over the next three years. However, the company's ROE is not expected to change by much despite the lower expected payout ratio.
Summary
Overall, we are quite pleased with Münchener Rückversicherungs-Gesellschaft in München's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.
