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Dierig Holding's (ETR:DIE) stock up by 8.8% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Dierig Holding's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Dierig Holding
How To Calculate Return On Equity?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Dierig Holding is:
4.9% = €2.4m ÷ €50m (Based on the trailing twelve months to December 2023).
The 'return' is the yearly profit. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.05 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
A Side By Side comparison of Dierig Holding's Earnings Growth And 4.9% ROE
At first glance, Dierig Holding's ROE doesn't look very promising. Next, when compared to the average industry ROE of 8.5%, the company's ROE leaves us feeling even less enthusiastic. Although, we can see that Dierig Holding saw a modest net income growth of 11% over the past five years. So, there might be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing Dierig Holding's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 14% over the last few years.
Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Dierig Holding's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.