Robert Half (NYSE:RHI) stock has increased by 1.1% over the past month. Usually the market pays for a company's long-term financial health, so we decided to examine a company's fundamentals to see if they might be influencing the market. Did. In particular, I would like to pay attention to Robert Half's ROE today.
Return on equity or ROE is a key measure used to evaluate how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio that measures the rate of return on the capital provided by a company's shareholders.
Check out our latest analysis for Robert Half.
How is ROE calculated?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Robert Half's ROE is:
26% = USD 411 million ÷ USD 1.6 billion (based on trailing twelve months to December 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. This means that for every $1 of shareholders' equity, the company generated $0.26 in profit.
What relationship does ROE have with profit growth?
It has already been established that ROE serves as an indicator of how efficiently a company will generate future profits. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company's earnings growth potential. All else being equal, companies with higher return on equity and profit retention typically have higher growth rates compared to companies that don't have the same characteristics.
Robert Half's Earnings Growth and ROE of 26%
First of all, we like that Robert Half has a good ROE. Furthermore, the company's ROE is high compared to the industry average of 12%, which is quite noteworthy. This likely paved the way for his meager 7.7% net profit increase that Robert Half has seen over the past five years.
As a next step, we compared Robert Half's net income growth rate with the industry, and were disappointed to see that the company's growth rate was lower than the industry average growth rate of 11% over the same period.
Earnings growth is an important metric to consider when evaluating a stock. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. That way, you'll know if the stock is headed for clear blue waters or if a swamp awaits. Is the market pricing in RHI's future prospects? Find out in our latest Intrinsic Value infographic research report.
Is Robert Half using its profits efficiently?
Robert Half's median three-year payout ratio is 31%, meaning it retains the remaining 69% of its profits. This suggests that the dividend is well covered, and given the company's healthy growth, it appears that management is reinvesting earnings efficiently.
Furthermore, Robert Half 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 35%. Therefore, Robert Half's future ROE is projected to be his 28%, which is also expected to be similar to his current ROE.
summary
Overall, I'm pretty happy with Robert Half'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. According to the latest industry analyst forecasts, the company is expected to maintain its current growth rate. To know more about the latest analyst forecasts 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 using only unbiased methodologies, 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.
