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Jones Lang LaSalle's (NYSE:JLL) stock is up by 5.5% 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 Jones Lang LaSalle'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.
Check out our latest analysis for Jones Lang LaSalle
How Is ROE Calculated?
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 Jones Lang LaSalle is:
17% = US$1.0b ÷ US$6.0b (Based on the trailing twelve months to September 2022).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.17 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
A Side By Side comparison of Jones Lang LaSalle's Earnings Growth And 17% ROE
To start with, Jones Lang LaSalle's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 15%. This certainly adds some context to Jones Lang LaSalle's exceptional 24% net income growth seen over the past five years. However, there could also be other drivers behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing Jones Lang LaSalle's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 21% in the same period.
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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Jones Lang LaSalle's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.