Yahoo Finance Is LUDWIG BECK am Rathauseck - Textilhaus Feldmeier AG's (ETR:ECK) Stock Price Struggling As A Result Of Its Mixed Financials?
LUDWIG BECK am Rathauseck - Textilhaus Feldmeier (ETR:ECK) has had a rough three months with its share price down 13%. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. Specifically, we decided to study LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's ROE in this article.
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 LUDWIG BECK am Rathauseck - Textilhaus Feldmeier
How Is ROE Calculated?
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 LUDWIG BECK am Rathauseck - Textilhaus Feldmeier is:
3.5% = €2.2m ÷ €64m (Based on the trailing twelve months to June 2023).
The 'return' is the income the business earned over the last year. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.03.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's Earnings Growth And 3.5% ROE
On the face of it, LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's ROE is not much to talk about. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 15% either. Thus, the low net income growth of 3.0% seen by LUDWIG BECK am Rathauseck - Textilhaus Feldmeier over the past five years could probably be the result of the low ROE.
We then compared LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 19% in the same 5-year period, which is a bit concerning.
Earnings growth is a huge factor in stock valuation. 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 LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is LUDWIG BECK am Rathauseck - Textilhaus Feldmeier Using Its Retained Earnings Effectively?
LUDWIG BECK am Rathauseck - Textilhaus Feldmeier doesn't pay any dividend, meaning that potentially all of its profits are being reinvested in the business. This doesn't explain the low earnings growth number that we discussed above. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.
Summary
On the whole, we feel that the performance shown by LUDWIG BECK am Rathauseck - Textilhaus Feldmeier can be open to many interpretations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. Our risks dashboard would have the 3 risks we have identified for LUDWIG BECK am Rathauseck - Textilhaus Feldmeier.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
