Do you think that this requires a deeper understanding of its financial prospects.

ManpowerGroup (NYSE:MAN), stock has risen by 30% in the last three months. We are curious about the role of financials in price changes. Long-term fundamentals often dictate market outcomes. This article will focus on ManpowerGroup’s ROE.

ROE, or return on equity, is a useful indicator of how well a company generates returns from the capital it has received from shareholders. It measures the profitability of a company relative to shareholder equity.

Check out our latest analysis for ManpowerGroup

How can you calculate the return on equity

You can calculate ROE using this formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

The ROE for ManpowerGroup, as a result of the above formula is:

18% = US$436m ÷ US$2.4b (Based on the trailing twelve months to September 2022).

The yearly profit is the’return. You can think of this as the company making $0.18 profit for every $1 in shareholders’ capital.

What is ROE important for earnings growth?

ROE can be used to predict future earnings by a company. We know this because it is an efficient way to measure the company’s profit-generating potential. 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. Companies with a higher return-on-equity and higher profit retention, assuming all else being equal, are more likely to have a higher rate of growth than those that don’t.

ManpowerGroup Earnings Growth and 18%

ManpowerGroup has a respectable ROE. The company’s ROE is also comparable to the industry average 17%. ManpowerGroup reports a 15% decline in net income. This is surprising, as you might guess. We believe there may be other factors that are limiting the company’s growth that have not been mentioned in this article. The company may be paying out large amounts of its earnings in dividends or being subject to competitive pressures.

We next compared ManpowerGroup’s performance to the industry. It was disappointing to find that the company had been losing earnings while the industry had been growing at 13% over the same time.

Stock valuations are heavily affected by earnings growth. Investors need to find out if the expected earnings growth or lack thereof is already included in the share price. Investors will be able to determine if the stock is headed in clear blue waters, or if it is headed for swampy waters. Are ManpowerGroup’s stock prices comparable to those of other companies? These 3 valuation measures might help you decide.

Does ManpowerGroup use its retained earnings effectively?

ManpowerGroup, despite having a 36% median payout ratio over three years (where it retains 64% of its profits), has seen an increase in earnings, as we have seen above. There could be other factors that explain this decline. It could be that the business is in decline.

ManpowerGroup also has paid dividends over a minimum of ten years. This means that even though it may not bring in any additional earnings, the management is determined to pay dividends. The company’s future payout ratio is predicted to fall to 28% in the next three years according to our latest analyst data. Despite this, ROE is unlikely to change significantly.

Summary

ManpowerGroup appears to have positive aspects overall. We would have expected strong earnings growth given the company’s high ROE and high profit retention. However, this is not the case. This indicates that the company may be facing an external threat that could hinder its growth. We did however study the most recent analyst forecasts and found that analysts expect the company’s earnings growth will slightly improve. It is possible that the company’s shareholders will find some relief. This article will provide more information about the company’s future earnings growth projections. Free report on analyst forecasts for the company to find out more.

Let us know what you think about this article. Are you concerned about the content? Get in touch Contact us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St has a general nature. We only provide commentary on historical data and analyst projections. Our articles are not meant to be considered financial advice. It is not a recommendation not to buy or sell any stocks and does not take into account your financial situation or objectives. Our goal is to provide you with long-term, focused analysis based on fundamental data. Our analysis may not take into account the most recent price-sensitive company announcements and qualitative material. Simply Wall St does not hold any position in the stocks mentioned.

Participate in a Paid User Research Session
You’ll receive a Amazon Gift Card – US$30 Give us 1 hour of your time and help us create better investing tools for individual investors like you. Sign up here