Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München's (ETR:MUV2) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?
Münchener Rückversicherungs-Gesellschaft in München's (ETR:MUV2) stock is up by 9.4% 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. Particularly, we will be paying attention to Münchener Rückversicherungs-Gesellschaft in München's ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Münchener Rückversicherungs-Gesellschaft in München
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 Münchener Rückversicherungs-Gesellschaft in München is:
10% = €2.8b ÷ €27b (Based on the trailing twelve months to June 2023).
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 €0.10 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. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Münchener Rückversicherungs-Gesellschaft in München's Earnings Growth And 10% ROE
To start with, Münchener Rückversicherungs-Gesellschaft in München's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 10%. Consequently, this likely laid the ground for the decent growth of 15% seen over the past five years by Münchener Rückversicherungs-Gesellschaft in München.
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 6.3% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Münchener Rückversicherungs-Gesellschaft in München is trading on a high P/E or a low P/E, relative to its industry.
Is Münchener Rückversicherungs-Gesellschaft in München Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 57% (or a retention ratio of 43%) for Münchener Rückversicherungs-Gesellschaft in München suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Moreover, Münchener Rückversicherungs-Gesellschaft in München is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 35% over the next three years. The fact that the company's ROE is expected to rise to 16% over the same period is explained by the drop in the payout ratio.
Conclusion
In total, we are pretty happy 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. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
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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.
