Can Mixed Financials Have A Negative Impact on EnBW Energie Baden-Württemberg AG's 's (ETR:EBK) Current Price Momentum?
EnBW Energie Baden-Württemberg's (ETR:EBK) stock is up by 3.0% over the past three months. Given that the stock prices usually follow long-term business performance, we wonder if the company's mixed financials could have any adverse effect on its current price price movement Specifically, we decided to study EnBW Energie Baden-Württemberg'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.
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 EnBW Energie Baden-Württemberg is:
4.0% = €870m ÷ €22b (Based on the trailing twelve months to September 2025).
The 'return' is the profit over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.04.
See our latest analysis for EnBW Energie Baden-Württemberg
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
EnBW Energie Baden-Württemberg's Earnings Growth And 4.0% ROE
When you first look at it, EnBW Energie Baden-Württemberg's ROE doesn't look that attractive. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 9.6% either. Accordingly, EnBW Energie Baden-Württemberg's low net income growth of 4.8% over the past five years can possibly be explained by the low ROE amongst other factors.
Next, on comparing with the industry net income growth, we found that EnBW Energie Baden-Württemberg's reported growth was lower than the industry growth of 16% over the last few years, which is not something we like to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if EnBW Energie Baden-Württemberg is trading on a high P/E or a low P/E, relative to its industry.
Is EnBW Energie Baden-Württemberg Making Efficient Use Of Its Profits?
While EnBW Energie Baden-Württemberg has a decent three-year median payout ratio of 44% (or a retention ratio of 56%), it has seen very little growth in earnings. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.
In addition, EnBW Energie Baden-Württemberg has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.
Summary
Overall, we have mixed feelings about EnBW Energie Baden-Württemberg. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. To know the 5 risks we have identified for EnBW Energie Baden-Württemberg visit our risks dashboard for free.
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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.