Mandatum Oyj's (HEL:MANTA) Stock Has Shown A Decent Performance: Have Financials A Role To Play?

Most readers would already know that Mandatum Oyj's (HEL:MANTA) stock increased by 5.4% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Mandatum Oyj'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Mandatum Oyj

How Do You 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 Mandatum Oyj is:

13% = €193m ÷ €1.5b (Based on the trailing twelve months to June 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 €0.13 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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 Mandatum Oyj's Earnings Growth And 13% ROE

To start with, Mandatum Oyj's ROE looks acceptable. Even when compared to the industry average of 13% the company's ROE looks quite decent. This probably goes some way in explaining Mandatum Oyj's moderate 12% growth over the past five years amongst other factors.

As a next step, we compared Mandatum Oyj'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 4.2%.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is MANTA worth today? The intrinsic value infographic in our free research report helps visualize whether MANTA is currently mispriced by the market.

Is Mandatum Oyj Efficiently Re-investing Its Profits?

Mandatum Oyj has a significant three-year median payout ratio of 96%, meaning that it is left with only 4.5% 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.

Along with seeing a growth in earnings, Mandatum Oyj only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 105% of its profits over the next three years. As a result, Mandatum Oyj's ROE is not expected to change by much either, which we inferred from the analyst estimate of 10% for future ROE.

Summary

On the whole, we do feel that Mandatum Oyj has some positive attributes. Namely, its high earnings growth, which was likely due to its high ROE. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining hardly any of its profits. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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.