Can Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság (BUSE:EPROLIUSIA) Improve Its Returns?

While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. We'll use ROE to examine Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság (BUSE:EPROLIUSIA), 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság

How To 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 Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság is:

7.7% = Ft474m ÷ Ft6.2b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. So, this means that for every HUF1 of its shareholder's investments, the company generates a profit of HUF0.08.

Does Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság 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. If you look at the image below, you can see Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság has a lower ROE than the average (12%) in the Real Estate industry classification.

That's not what we like to see. Although, we think that a lower ROE could still mean that a company has the opportunity to better its returns with the use of leverage, provided its existing debt levels are low. A high debt company having a low ROE is a different story altogether and a risky investment in our books. You can see the 7 risks we have identified for Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság by visiting our risks dashboard for free on our platform here.

How Does Debt Impact Return On Equity?

Companies usually need to invest money 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 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.

Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság's Debt And Its 7.7% ROE

While Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság does have some debt, with a debt to equity ratio of just 0.69, we wouldn't say debt is excessive. I'm not impressed with its ROE, but the debt levels are not too high, indicating the business has decent prospects. Conservative use of debt to boost returns is usually a good move for shareholders, though it does leave the company more exposed to interest rate rises.

Summary

Return on equity is one way we can compare its business quality of different companies. In our books, the highest quality companies have high return on equity, despite low debt. All else being equal, a higher ROE is better.

Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. 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. You can see how the company has grow in the past by looking at this FREE detailed graph of past earnings, revenue and cash flow.

But note: Eprolius Ingatlan Nyilvánosan Muködo Részvénytársaság 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.

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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.