Does The Mosaic Company’s (NYSE: MOS) Latest Market Performance Reflect Its Financial Health?

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Mosaic (NYSE: MOS) stock has risen 18% in the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market results. In this article, we have decided to focus on the ROE of Mosaic.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how effectively their capital is being reinvested. In other words, it reveals the company’s success in turning shareholders’ investments into profits.

Discover our latest analysis for Mosaic

How to calculate return on equity?

Return on equity can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, Mosaic’s ROE is:

17% = US $ 1.8 billion ÷ US $ 11 billion (based on the last twelve months to September 2021).

The “return” is the profit of the last twelve months. This means that for every dollar in shareholders’ equity, the company generated $ 0.17 in profit.

What does ROE have to do with profit growth?

So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.

Mosaic profit growth and 17% ROE

For starters, Mosaic’s ROE seems acceptable. Especially compared to the industry average of 14%, the company’s ROE looks pretty impressive. This likely laid the foundation for Mosaic’s moderate 11% net income growth seen over the past five years.

Then, comparing with the industry net income growth, we found that the growth of Mosaic is quite high compared to the industry average growth of 5.9% during the same period, which is great to see.

NYSE: MOS Past Profit Growth November 20, 2021

Profit growth is an important metric to consider when valuing a stock. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. Is the MOS valued enough? This intrinsic business value infographic has everything you need to know.

Is Mosaic effectively reinvesting its profits?

In the case of Mosaic, its respectable profit growth can likely be explained by its low three-year median payout rate of 5.3% (or a retention rate of 95%), which suggests that the company is investing most of its profits to develop its business.

In addition, Mosaic has been paying dividends for at least ten years or more. This shows that the company is committed to sharing the profits with its shareholders. Looking at the current analyst consensus data, we can see that the company’s future payout ratio is expected to increase to 12% over the next three years. Thus, the expected increase in the payout ratio explains the expected drop in the company’s ROE to 9.7% over the same period.

Summary

Overall, we are quite satisfied with the performance of Mosaic. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in significant growth in its profits. That said, by studying the latest analysts’ forecast, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to decline. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.

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 shares 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 material. Simply Wall St has no position in the mentioned stocks.

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