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Is Publicis Groupe SA’s (EPA:PUB) 14.64% ROE Strong Compared To Its Industry?

This analysis is intended to introduce important early concepts to people who are starting to invest and want a simplistic look at the return on Publicis Groupe SA (EPA:PUB) stock.

Publicis Groupe SA (EPA:PUB) delivered an ROE of 14.64% over the past 12 months, which is an impressive feat relative to its industry average of 9.56% during the same period. On the surface, this looks fantastic since we know that PUB has made large profits from little equity capital; however, ROE doesn’t tell us if management have borrowed heavily to make this happen. We’ll take a closer look today at factors like financial leverage to determine whether PUB’s ROE is actually sustainable. View out our latest analysis for Publicis Groupe

Breaking down ROE — the mother of all ratios

Return on Equity (ROE) weighs Publicis Groupe’s profit against the level of its shareholders’ equity. For example, if the company invests €1 in the form of equity, it will generate €0.15 in earnings from this. While a higher ROE is preferred in most cases, there are several other factors we should consider before drawing any conclusions.

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Return on Equity = Net Profit ÷ Shareholders Equity

ROE is assessed against cost of equity, which is measured using the Capital Asset Pricing Model (CAPM) – but let’s not dive into the details of that today. For now, let’s just look at the cost of equity number for Publicis Groupe, which is 8.16%. This means Publicis Groupe returns enough to cover its own cost of equity, with a buffer of 6.48%. This sustainable practice implies that the company pays less for its capital than what it generates in return. ROE can be broken down into three different 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

ENXTPA:PUB Last Perf June 24th 18
ENXTPA:PUB Last Perf June 24th 18

Essentially, profit margin shows how much money the company makes after paying for all its expenses. Asset turnover reveals how much revenue can be generated from Publicis Groupe’s 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 Publicis Groupe’s debt-to-equity level. Currently the debt-to-equity ratio stands at a reasonable 53.00%, which means its above-average ROE is driven by its ability to grow its profit without a significant debt burden.

ENXTPA:PUB Historical Debt June 24th 18
ENXTPA:PUB Historical Debt June 24th 18

Next Steps:

ROE is one of many ratios which meaningfully dissects financial statements, which illustrates the quality of a company. Publicis Groupe’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 Publicis Groupe, there are three important factors you should further research:

  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 Publicis Groupe 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 Publicis Groupe is currently mispriced by the market.

  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Publicis Groupe? 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.