With its stock down 17% over the past three months, it is easy to disregard Macquarie Technology Group (ASX:MAQ). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Macquarie Technology Group's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

How Do You Calculate Return On Equity?

ROE 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 Macquarie Technology Group is:

7.7% = AU$36m ÷ AU$471m (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. So, this means that for every A$1 of its shareholder's investments, the company generates a profit of A$0.08.

Check out our latest analysis for Macquarie Technology Group

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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 Macquarie Technology Group's Earnings Growth And 7.7% ROE

On the face of it, Macquarie Technology Group's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 5.0% which we definitely can't overlook. Even more so after seeing Macquarie Technology Group's exceptional 24% net income growth over the past five years. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Hence, there might be some other aspects that are causing earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

As a next step, we compared Macquarie Technology Group's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 24% in the same period.