Is Électricite de Strasbourg Société Anonyme's (EPA:ELEC) Recent Performance Tethered To Its Attractive Financial Prospects?

Électricite de Strasbourg Société Anonyme's (EPA:ELEC) stock up by 9.8% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Électricite de Strasbourg Société Anonyme's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To 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 Électricite de Strasbourg Société Anonyme is:

26% = €156m ÷ €610m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.26 in profit.

Check out our latest analysis for Électricite de Strasbourg Société Anonyme

Why Is ROE Important For 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Électricite de Strasbourg Société Anonyme's Earnings Growth And 26% ROE

Firstly, we acknowledge that Électricite de Strasbourg Société Anonyme has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 9.8% also doesn't go unnoticed by us. So, the substantial 32% net income growth seen by Électricite de Strasbourg Société Anonyme over the past five years isn't overly surprising.

As a next step, we compared Électricite de Strasbourg Société Anonyme's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 16%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Électricite de Strasbourg Société Anonyme's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Électricite de Strasbourg Société Anonyme Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 51% (implying that it keeps only 49% of profits) for Électricite de Strasbourg Société Anonyme suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, Électricite de Strasbourg Société Anonyme has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, we are pretty happy with Électricite de Strasbourg Société Anonyme's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Électricite de Strasbourg Société Anonyme's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.