Marten Transport (NASDAQ: MRTN) shares have risen 6.7% in the past three months. Given its impressive performance, we decided to study the company’s key financial metrics, as a company’s long-term fundamentals usually dictate market results. In particular, we will pay particular attention to the ROE of Marten Transport today.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.
See our latest analysis for Marten Transport
How do you calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, the ROE for Marten Transport is:
13% = US $ 80 million ÷ US $ 630 million (based on the last twelve months up to September 2021).
“Return” refers to a company’s profits over the past year. This therefore means that for every $ 1 invested by its shareholder, the company generates a profit of $ 0.13.
What is the relationship between ROE and profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on how much of those profits the company reinvests or “withholds” and its efficiency, we are then able to assess a company’s profit growth potential. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.
Marten Transport profit growth and 13% ROE
At first glance, Marten Transport appears to have a decent ROE. Regardless, the company’s ROE is still well below the industry average of 18%. However, we can see that Marten Transport has recorded modest net profit growth of 9.6% over the past five years. We think there might be other factors at play here. Such as – high profit retention or effective management in place. However, it should be remembered that the company has a decent ROE to start with, just that it is below the industry average. So it also provides some context for the profit growth observed by the company.
As a next step, we compared Marten Transport’s net income growth with the industry and found that the company has a similar growth figure compared to the industry average growth rate of 8.0% over the course of the same period.
The basis for attaching value to a business is, to a large extent, related to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps him determine whether the stock is set for a bright or dark future. Is Marten Transport just valued compared to other companies? These 3 evaluation measures could help you decide.
Is Marten Transport effectively reinvesting its profits?
In the case of Marten Transport, its respectable profit growth can probably be explained by its low three-year median distribution rate of 12% (or an 88% retention rate), which suggests that the company is investing the most of its profits to develop its business. .
In addition, Marten Transport is determined to continue to share its profits with its shareholders, which we can deduce from its long history of paying dividends for at least ten years.
All in all, we are quite satisfied with the performance of Marten Transport. In particular, it’s great to see that the company has experienced significant profit growth supported by a respectable ROE and a high rate of reinvestment. The latest forecasts from industry analysts show the company is expected to maintain its current growth rate. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.