With its stock down 28% over the past three months, it is easy to disregard MobilityOne (LON:MBO). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study MobilityOne's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for MobilityOne

How To Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for MobilityOne is:

31% = UK£1.5m ÷ UK£4.8m (Based on the trailing twelve months to December 2021).

The 'return' is the income the business earned over the last year. So, this means that for every £1 of its shareholder's investments, the company generates a profit of £0.31.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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 MobilityOne's Earnings Growth And 31% ROE

First thing first, we like that MobilityOne has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 7.5% which is quite remarkable. As a result, MobilityOne's exceptional 39% net income growth seen over the past five years, doesn't come as a surprise.

We then compared MobilityOne'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 9.1% 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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about MobilityOne's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.