Zurich Insurance Group AG's (VTX:ZURN) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Zurich Insurance Group's (VTX:ZURN) stock is up by 1.8% over the past month. 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 Zurich Insurance Group's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Is ROE Calculated?

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 Zurich Insurance Group is:

23% = US$6.2b ÷ US$27b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. That means that for every CHF1 worth of shareholders' equity, the company generated CHF0.23 in profit.

Check out our latest analysis for Zurich Insurance Group

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A Side By Side comparison of Zurich Insurance Group's Earnings Growth And 23% ROE

First thing first, we like that Zurich Insurance Group has an impressive ROE. Secondly, even when compared to the industry average of 13% the company's ROE is quite impressive. Probably as a result of this, Zurich Insurance Group was able to see a decent net income growth of 5.2% over the last five years.

We then compared Zurich Insurance Group'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 1.6% in the same 5-year 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). This then helps them determine if the stock is placed for a bright or bleak future. Is Zurich Insurance Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Zurich Insurance Group Making Efficient Use Of Its Profits?

Zurich Insurance Group has a significant three-year median payout ratio of 90%, meaning that it is left with only 10% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Besides, Zurich Insurance Group has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 77% of its profits over the next three years. Accordingly, forecasts suggest that Zurich Insurance Group's future ROE will be 24% which is again, similar to the current ROE.

Conclusion

Overall, we are quite pleased with Zurich Insurance Group's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. 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.