Most readers would already be aware that MDU Resources Group's (NYSE:MDU) stock increased significantly by 13% over the past month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study MDU Resources 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for MDU Resources Group

How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for MDU Resources Group is:

14% = US$410m ÷ US$3.0b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.14.

What Is The Relationship Between ROE And 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.

MDU Resources Group's Earnings Growth And 14% ROE

To begin with, MDU Resources Group seems to have a respectable ROE. Even when compared to the industry average of 12% the company's ROE looks quite decent. MDU Resources Group's decent returns aren't reflected in MDU Resources Group'smediocre five year net income growth average of 4.3%. A few likely reasons that could be keeping earnings growth low are - the company has a high payout ratio or the business has allocated capital poorly, for instance.

As a next step, we compared MDU Resources Group's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 18% 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). This then helps them determine if the stock is placed for a bright or bleak future. What is MDU worth today? The intrinsic value infographic in our free research report helps visualize whether MDU is currently mispriced by the market.