In This Article:
Most readers would already be aware that M1 Kliniken's (ETR:M12) stock increased significantly by 22% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on M1 Kliniken'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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
View our latest analysis for M1 Kliniken
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 M1 Kliniken is:
13% = €18m ÷ €136m (Based on the trailing twelve months to June 2024).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.13 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 M1 Kliniken's Earnings Growth And 13% ROE
To start with, M1 Kliniken's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 5.7%. Probably as a result of this, M1 Kliniken was able to see a decent growth of 7.2% over the last five years.
Next, on comparing with the industry net income growth, we found that M1 Kliniken's growth is quite high when compared to the industry average growth of 5.8% in the same period, which is great to see.
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). This then helps them determine if the stock is placed for a bright or bleak future. Is M1 Kliniken fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is M1 Kliniken Making Efficient Use Of Its Profits?
The high three-year median payout ratio of 69% (or a retention ratio of 31%) for M1 Kliniken suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.