Yahoo Finance Mensch und Maschine Software SE's (ETR:MUM) Stock Has Fared Decently: Is the Market Following Strong Financials?
Mensch und Maschine Software's (ETR:MUM) stock is up by 6.4% 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. Particularly, we will be paying attention to Mensch und Maschine Software'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. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for Mensch und Maschine Software
How To 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 Mensch und Maschine Software is:
30% = €33m ÷ €110m (Based on the trailing twelve months to March 2024).
The 'return' is the yearly profit. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.30 in profit.
Why Is ROE Important For 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
Mensch und Maschine Software's Earnings Growth And 30% ROE
Firstly, we acknowledge that Mensch und Maschine Software has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 15% also doesn't go unnoticed by us. This probably laid the groundwork for Mensch und Maschine Software's moderate 15% net income growth seen over the past five years.
Next, on comparing with the industry net income growth, we found that Mensch und Maschine Software's growth is quite high when compared to the industry average growth of 11% 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is MUM worth today? The intrinsic value infographic in our free research report helps visualize whether MUM is currently mispriced by the market.
Is Mensch und Maschine Software Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 85% (or a retention ratio of 15%) for Mensch und Maschine Software suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Besides, Mensch und Maschine Software has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 79%.
Summary
On the whole, we feel that Mensch und Maschine Software's performance has been quite good. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.
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