Is Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München's (ETR:MUV2) Recent Stock Performance Tethered To Its Strong Fundamentals?

Münchener Rückversicherungs-Gesellschaft in München (ETR:MUV2) has had a great run on the share market with its stock up by a significant 8.4% over the last month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Münchener Rückversicherungs-Gesellschaft in München's ROE in this article.

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.

See our latest analysis for Münchener Rückversicherungs-Gesellschaft in München

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 Münchener Rückversicherungs-Gesellschaft in München is:

18% = €5.7b ÷ €31b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.18 in profit.

Why Is ROE Important For 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. 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.

Münchener Rückversicherungs-Gesellschaft in München's Earnings Growth And 18% ROE

To start with, Münchener Rückversicherungs-Gesellschaft in München's ROE looks acceptable. Especially when compared to the industry average of 10% the company's ROE looks pretty impressive. This certainly adds some context to Münchener Rückversicherungs-Gesellschaft in München's exceptional 25% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Münchener Rückversicherungs-Gesellschaft in München's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 7.1%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Münchener Rückversicherungs-Gesellschaft in München fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Münchener Rückversicherungs-Gesellschaft in München Using Its Retained Earnings Effectively?

Münchener Rückversicherungs-Gesellschaft in München's three-year median payout ratio is a pretty moderate 35%, meaning the company retains 65% of its income. By the looks of it, the dividend is well covered and Münchener Rückversicherungs-Gesellschaft in München is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Münchener Rückversicherungs-Gesellschaft in München is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 38% of its profits over the next three years. However, Münchener Rückversicherungs-Gesellschaft in München's future ROE is expected to decline to 12% despite there being not much change anticipated in the company's payout ratio.

Conclusion

In total, we are pretty happy with Münchener Rückversicherungs-Gesellschaft in München's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.