SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's (HMSE:NEP) stock is up by a considerable 20% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft is:

22% = €39m ÷ €179m (Based on the trailing twelve months to December 2022).

The 'return' is the income the business earned over the last year. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.22.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's Earnings Growth And 22% ROE

To begin with, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has a pretty high ROE which is interesting. Additionally, a comparison with the average industry ROE of 24% also portrays the company's ROE in a good light. Therefore, it might not be wrong to say that the impressive five year 74% net income growth seen by SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft was probably achieved as a result of the high ROE.

Next, on comparing SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 64% in the same period.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft Efficiently Re-investing Its Profits?

SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's three-year median payout ratio to shareholders is 24%, which is quite low. This implies that the company is retaining 76% of its profits. So it looks like SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we are quite pleased with SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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