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It is easy to overlook Mineralbrunnen Überkingen-Teinach GmbH KGaA's (FRA:MUT) given its unimpressive and roughly flat price performance over the past week. We decided to study the company's financials, which appear to be inconsistent, to assess what this could mean for future share prices as markets tend to be aligned with a company's long-term fundamentals. Specifically, we decided to study Mineralbrunnen Überkingen-Teinach GmbH KGaA's ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for Mineralbrunnen Überkingen-Teinach GmbH KGaA
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 Mineralbrunnen Überkingen-Teinach GmbH KGaA is:
8.3% = €5.7m ÷ €68m (Based on the trailing twelve months to June 2023).
The 'return' is the profit over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.08.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Mineralbrunnen Überkingen-Teinach GmbH KGaA's Earnings Growth And 8.3% ROE
On the face of it, Mineralbrunnen Überkingen-Teinach GmbH KGaA'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 6.5% which we definitely can't overlook. But seeing Mineralbrunnen Überkingen-Teinach GmbH KGaA's five year net income decline of 9.9% over the past five years, we might rethink that. Remember, the company's ROE is a bit low to begin with, just that it is higher than the industry average. So that could be one of the factors that are causing earnings growth to shrink.
As a next step, we compared Mineralbrunnen Überkingen-Teinach GmbH KGaA's performance with the industry and found thatMineralbrunnen Überkingen-Teinach GmbH KGaA's performance is depressing even when compared with the industry, which has shrunk its earnings at a rate of 0.5% in the same period, which is a slower than the company.