Are Poor Financial Prospects Dragging Down JLT Mobile Computers AB (publ) (STO:JLT Stock?

It is hard to get excited after looking at JLT Mobile Computers' (STO:JLT) recent performance, when its stock has declined 11% over the past three months. We decided to study the company's financials to determine if the downtrend will continue as the long-term performance of a company usually dictates market outcomes. Particularly, we will be paying attention to JLT Mobile Computers' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for JLT Mobile Computers

How Do You Calculate Return On Equity?

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 JLT Mobile Computers is:

5.1% = kr2.8m ÷ kr55m (Based on the trailing twelve months to June 2023).

The 'return' refers to a company's earnings over the last year. So, this means that for every SEK1 of its shareholder's investments, the company generates a profit of SEK0.05.

What Has ROE Got To Do With 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 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.

JLT Mobile Computers' Earnings Growth And 5.1% ROE

On the face of it, JLT Mobile Computers' ROE is not much to talk about. Yet, a closer study shows that the company's ROE is similar to the industry average of 6.1%. Having said that, JLT Mobile Computers' five year net income decline rate was 17%. Remember, the company's ROE is a bit low to begin with. So that's what might be causing earnings growth to shrink.

Next, when we compared with the industry, which has shrunk its earnings at a rate of 14% in the same 5-year period, we still found JLT Mobile Computers' performance to be quite bleak, because the company has been shrinking its earnings faster than the industry.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is JLT Mobile Computers fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is JLT Mobile Computers Making Efficient Use Of Its Profits?

JLT Mobile Computers' high three-year median payout ratio of 135% suggests that the company is depleting its resources to keep up its dividend payments, and this shows in its shrinking earnings. Its usually very hard to sustain dividend payments that are higher than reported profits. To know the 4 risks we have identified for JLT Mobile Computers visit our risks dashboard for free.

Additionally, JLT Mobile Computers has paid dividends over a period of nine years, which means that the company's management is rather focused on keeping up its dividend payments, regardless of the shrinking earnings.

Conclusion

Overall, we would be extremely cautious before making any decision on JLT Mobile Computers. The low ROE, combined with the fact that the company is paying out almost if not all, of its profits as dividends, has resulted in the lack or absence of growth in its earnings. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on JLT Mobile Computers and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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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.