Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme (ATH:MOTO) Delivered A Better ROE Than Its Industry

One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. We'll use ROE to examine Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme (ATH:MOTO), by way of a worked example.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme

How Do You Calculate Return On Equity?

ROE 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 Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme is:

45% = €11m ÷ €25m (Based on the trailing twelve months to June 2023).

The 'return' is the yearly profit. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.45.

Does Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme Have A Good ROE?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. Importantly, this is far from a perfect measure, because companies differ significantly within the same industry classification. As you can see in the graphic below, Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme has a higher ROE than the average (15%) in the Retail Distributors industry.

That's what we like to see. Bear in mind, a high ROE doesn't always mean superior financial performance. Especially when a firm uses high levels of debt to finance its debt which may boost its ROE but the high leverage puts the company at risk. To know the 5 risks we have identified for Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme visit our risks dashboard for free.

How Does Debt Impact ROE?

Virtually all companies need money to invest in the business, to grow profits. That cash can come from issuing shares, retained earnings, or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.

Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme's Debt And Its 45% ROE

It's worth noting the high use of debt by Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme, leading to its debt to equity ratio of 1.49. While no doubt that its ROE is impressive, we would have been even more impressed had the company achieved this with lower debt. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it.

Summary

Return on equity is one way we can compare its business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. If two companies have around the same level of debt to equity, and one has a higher ROE, I'd generally prefer the one with higher ROE.

But ROE is just one piece of a bigger puzzle, since high quality businesses often trade on high multiples of earnings. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. Check the past profit growth by Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme by looking at this visualization of past earnings, revenue and cash flow.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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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.