Most readers will already know that the QBE Insurance Group (ASX:QBE) share price has increased by a significant 20% over the past three months. Since the market usually pays for a company's long-term fundamentals, we decided to investigate whether a company's key performance indicators are influencing the market. In this article, we decided to focus on QBE Insurance Group's ROE.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. More simply, it measures a company's profitability in relation to shareholder equity.
Check out our latest analysis for QBE Insurance Group.
How do you calculate return on equity?
of Formula for calculating return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, QBE Insurance Group's ROE is:
14% = USD 1.4 billion ÷ USD 10 billion (based on trailing 12 months to December 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. One way he conceptualizes this is that for every A$1 of shareholders' equity, the company earned him A$0.14 of profit.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company's profitability. We are then able to evaluate a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” Generally, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
A side-by-side comparison of QBE Insurance Group's earnings growth and ROE of 14%.
Firstly, QBE Insurance Group appears to have a respectable ROE. Even compared to the industry average of 13%, the company's ROE looks pretty decent. As a result, this likely laid the foundation for his QBE Insurance Group's impressive net profit growth of 26% over the past five years. We believe that other factors may also be at play here. Maintaining high profits and efficient management, etc.
We then compared QBE Insurance Group's net income growth rate to its industry. The same he found that the company's growth rate was high when compared to the industry where in five years he recorded a growth rate of 12%.
Earnings growth is a big factor in stock valuation. Investors should check whether expected earnings growth or decline has been factored in in any case. By doing so, you can find out if the stock is headed for clear blue waters or if a swamp awaits. Is QBE Insurance Group fairly valued compared to other companies? These 3 metrics may help you decide.
Does QBE Insurance Group reinvest its profits efficiently?
QBE Insurance Group's median three-year payout ratio is 48% (retaining 52% of its earnings), which is neither too low nor too high. QBE Insurance Group therefore appears to have delivered impressive growth in earnings (as mentioned above) and reinvested them efficiently in a way that pays well-covered dividends.
Furthermore, QBE Insurance Group is determined to continue sharing its profits with shareholders, as inferred by its long history of paying dividends for at least 10 years. Based on our latest analyst data, the company's future payout ratio over the next three years is expected to be around 50%. Therefore, according to the prediction, his future ROE for QBE Insurance Group will be 16%, which will also be similar to his current ROE.
conclusion
Overall, we're pretty happy with QBE Insurance Group's performance. Specifically, we like that the company reinvests a huge amount of its profits at a high rate of return. Of course, this significantly increased the company's revenue. Having said that, a check of the latest analyst forecasts indicates that the company's future revenue growth is expected to slow. Learn more about the company's future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
