Mineralbrunnen Überkingen-Teinach GmbH KGaA (FRA:MUT) has had a great run on the share market with its stock up by a significant 11% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, 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. Particularly, we will be paying attention to Mineralbrunnen Überkingen-Teinach GmbH KGaA'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. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for Mineralbrunnen Überkingen-Teinach GmbH KGaA
How Do You 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 Mineralbrunnen Überkingen-Teinach GmbH KGaA is:
9.0% = €6.0m ÷ €67m (Based on the trailing twelve months to December 2022).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.09 in profit.
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.
Mineralbrunnen Überkingen-Teinach GmbH KGaA's Earnings Growth And 9.0% ROE
At first glance, Mineralbrunnen Überkingen-Teinach GmbH KGaA seems to have a decent ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 8.9%. For this reason, Mineralbrunnen Überkingen-Teinach GmbH KGaA's five year net income decline of 10% raises the question as to why the decent ROE didn't translate into growth. So, there might be some other aspects that could explain this. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.
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 5.5% in the same period, which is a slower than the company.