Yahoo Finance Are Strong Financial Prospects The Force That Is Driving The Momentum In LIMES Schlosskliniken AG's ETR:LIK) Stock?
LIMES Schlosskliniken's (ETR:LIK) stock is up by a considerable 16% 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. Specifically, we decided to study LIMES Schlosskliniken's ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
View our latest analysis for LIMES Schlosskliniken
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for LIMES Schlosskliniken is:
23% = €3.9m ÷ €17m (Based on the trailing twelve months to December 2023).
The 'return' is the income the business earned over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.23 in profit.
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.
LIMES Schlosskliniken's Earnings Growth And 23% ROE
First thing first, we like that LIMES Schlosskliniken has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 4.7% also doesn't go unnoticed by us. Under the circumstances, LIMES Schlosskliniken's considerable five year net income growth of 59% was to be expected.
Given that the industry shrunk its earnings at a rate of 0.9% over the last few years, the net income growth of the company is quite impressive.
Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about LIMES Schlosskliniken's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is LIMES Schlosskliniken Efficiently Re-investing Its Profits?
Given that LIMES Schlosskliniken doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
Conclusion
On the whole, we feel that LIMES Schlosskliniken's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. You can see the 2 risks we have identified for LIMES Schlosskliniken by visiting our risks dashboard for free on our platform here.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
