How Did JLT Mobile Computers AB (publ)’s (STO:JLT) 14.96% ROE Fare Against The Industry?

JLT Mobile Computers AB (publ) (OM:JLT) delivered an ROE of 14.96% over the past 12 months, which is an impressive feat relative to its industry average of 8.97% during the same period. Superficially, this looks great since we know that JLT has generated big profits with little equity capital; however, ROE doesn’t tell us how much JLT has borrowed in debt. Today, we’ll take a closer look at some factors like financial leverage to see how sustainable JLT’s ROE is. Check out our latest analysis for JLT Mobile Computers

Peeling the layers of ROE – trisecting a company’s profitability

Return on Equity (ROE) is a measure of JLT Mobile Computers’s profit relative to its shareholders’ equity. It essentially shows how much the company can generate in earnings given the amount of equity it has raised. While a higher ROE is preferred in most cases, there are several other factors we should consider before drawing any conclusions.

Return on Equity = Net Profit ÷ Shareholders Equity

Returns are usually compared to costs to measure the efficiency of capital. JLT Mobile Computers’s cost of equity is 10.10%. This means JLT Mobile Computers returns enough to cover its own cost of equity, with a buffer of 4.85%. This sustainable practice implies that the company pays less for its capital than what it generates in return. ROE can be split up into three useful ratios: net profit margin, asset turnover, and financial leverage. This is called the Dupont Formula:

Dupont Formula

ROE = profit margin × asset turnover × financial leverage

ROE = (annual net profit ÷ sales) × (sales ÷ assets) × (assets ÷ shareholders’ equity)

ROE = annual net profit ÷ shareholders’ equity

OM:JLT Last Perf Apr 19th 18
OM:JLT Last Perf Apr 19th 18

The first component is profit margin, which measures how much of sales is retained after the company pays for all its expenses. The other component, asset turnover, illustrates how much revenue JLT Mobile Computers can make from its asset base. The most interesting ratio, and reflective of sustainability of its ROE, is financial leverage. Since ROE can be inflated by excessive debt, we need to examine JLT Mobile Computers’s debt-to-equity level. Currently, JLT Mobile Computers has no debt which means its returns are driven purely by equity capital. Therefore, the level of financial leverage has no impact on ROE, and the ratio is a representative measure of the efficiency of all its capital employed firm-wide.

OM:JLT Historical Debt Apr 19th 18
OM:JLT Historical Debt Apr 19th 18

Next Steps:

ROE is a simple yet informative ratio, illustrating the various components that each measure the quality of the overall stock. JLT Mobile Computers’s ROE is impressive relative to the industry average and also covers its cost of equity. ROE is not likely to be inflated by excessive debt funding, giving shareholders more conviction in the sustainability of high returns. Although ROE can be a useful metric, it is only a small part of diligent research.

For JLT Mobile Computers, I’ve compiled three relevant factors you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Valuation: What is JLT Mobile Computers worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether JLT Mobile Computers is currently mispriced by the market.

  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of JLT Mobile Computers? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.