It’s hard to get excited about SGL Carbon’s (ETR:SGL) share price’s recent performance, which has seen it drop 21% over the past three months. But if you pay close attention, given how the market typically rewards companies with strong financial health, the company’s strong financials could mean a higher share price over the long term. You may be wondering if that means something. In this article, we decided to focus on SGL Carbon’s ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it receives from its shareholders. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for SGL Carbon.
How do you calculate return on equity?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, SGL Carbon’s ROE is:
12% = €81 million ÷ €665 million (based on the trailing twelve months to June 2024).
“Earnings” is the amount of your after-tax earnings over the past 12 months. Another way to think of it is that for every €1 worth of shares it owned, the company earned €0.12 in profit.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company’s profitability. We are then able to assess a company’s future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” Assuming everything else remains constant, the higher the ROE and profit retention, the higher the company’s growth rate compared to companies that don’t necessarily have these characteristics.
SGL Carbon’s revenue growth and ROE 12%
At first glance, SGL Carbon appears to have a decent ROE. Moreover, the company’s ROE is in line with the industry average of 13%. This certainly gives some context to the exceptional 50% growth in SGL Carbon’s net income over the past five years. However, there may also be other factors behind this growth. For example: – Maintaining high profits and efficient management.
As a next step, we compared SGL Carbon’s net income growth to its industry. And we’re happy to see that the company’s growth is higher than the industry average of 31%.
Past revenue growth
Earnings growth is an important metric to consider when evaluating a stock. Investors should check whether expected earnings growth or decline has been factored in in any case. Doing so will help you determine whether a stock’s future is promising or ominous. Is SGL Carbon fairly valued compared to other companies? These 3 valuation metrics can help you decide.
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Is SGL Carbon effectively utilizing its retained earnings?
SGL Carbon does not pay regular dividends to its shareholders. This means that the company reinvests all of its profits back into the business. This is likely what is driving the high earnings growth rate discussed above.
summary
Overall, we feel that the SGL Carbon’s performance is very good. Specifically, we like that the company reinvests a huge amount of its profits at a high rate of return. Of course, this significantly increased the company’s revenue. With that said, the company’s revenue growth is expected to slow, as predicted by current analyst forecasts. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company’s fundamentals? Click here to be taken to our analyst forecasts page for the company .
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.