Eurobio Scientific Société anonyme (EPA: ALERS) shares have risen considerably by 11% over the past week. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market results. In this article, we have chosen to focus on the ROE of Eurobio Scientific Société anonyme.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. Simply put, it is used to assess a company’s profitability against its equity.
See our latest analysis for Eurobio Scientific Société anonyme
How do you calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, on the basis of the above formula, the ROE of Eurobio Scientific Société anonyme is:
68% = 73 million euros ÷ 108 million euros (based on the last twelve months up to December 2020).
The “return” is the income the business has earned over the past year. Another way to look at this is that for every $ 1 in shares, the company was able to make $ 0.68 in profit.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. We now need to assess the profits that the company is reinvesting or “withholding” for future growth, which then gives us an idea of the growth potential of the company. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
A side-by-side comparison of Eurobio Scientific’s 68% profit growth and ROE
First of all, we recognize that Eurobio Scientific Société anonyme has a significantly high ROE. Secondly, a comparison with the industry-reported average ROE of 16% doesn’t go unnoticed for us either. Consequently, the exceptional growth of Eurobio Scientific Société anonyme’s net income of 79% over the past five years is no surprise.
Then, comparing Eurobio Scientific Limited Company’s net profit growth with the industry, we found that the reported growth of the company is similar to the industry average growth rate of 79% over the same period.
Profit growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So, you might want to check if Eurobio Scientific Société Anonyme is trading at a high P / E or a low P / E, relative to its industry.
Does Eurobio Scientific Société anonyme use its profits efficiently?
Since Eurobio Scientific Société anonyme does not pay any dividends to its shareholders, we deduce that the company has reinvested all of its profits to develop its activity.
Overall, we believe that Eurobio Scientific Société anonyme’s performance is rather good. Specifically, we like the fact that the company reinvests a large portion of its profits at a high rate of return. This of course allowed the company to experience substantial growth in profits. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. It should be remembered that the results of stock prices also depend on the potential risks a company may face. It is therefore important that investors are aware of the risks inherent in the business. You can see the 1 risk that we have identified for Eurobio Scientific Société anonyme by visiting our risk dashboard for free on our platform here.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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