Is Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme (ATH:MOTO) A High Quality Stock To Own?

Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). To keep the lesson grounded in practicality, we'll use ROE to better understand Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme (ATH:MOTO).

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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

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 Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme is:

33% = €11m ÷ €32m (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.33 in profit.

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. However, this method is only useful as a rough check, because companies do differ quite a bit 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 (12%) in the Retail Distributors industry.

That is a good sign. However, bear in mind that a high ROE doesn’t necessarily indicate efficient profit generation. A higher proportion of debt in a company's capital structure may also result in a high ROE, where the high debt levels could be a huge risk . Our risks dashboardshould have the 5 risks we have identified for Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme.

How Does Debt Impact ROE?

Most companies need money -- from somewhere -- to grow their profits. That cash can come from retained earnings, issuing new shares (equity), 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 used for growth will improve returns, but won't affect the total equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.

Combining Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme's Debt And Its 33% Return On Equity

Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme clearly uses a high amount of debt to boost returns, as it has a debt to equity ratio of 1.99. Its ROE is pretty impressive but, it would have probably been lower without the use of debt. Debt does bring extra risk, so it's only really worthwhile when a company generates some decent returns from 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. All else being equal, a higher ROE is better.

But ROE is just one piece of a bigger puzzle, since high quality businesses often trade on high multiples of earnings. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. So I think it may be worth checking this free report on analyst forecasts for the company.

But note: Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com