Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's (ETR:BVB) stock is up by 4.6% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's ROE in this article.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien is:

9.8% = €32m ÷ €332m (Based on the trailing twelve months to March 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.10 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Earnings Growth And 9.8% ROE

To begin with, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien seems to have a respectable ROE. Be that as it may, the company's ROE is still quite lower than the industry average of 13%. Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien was still able to see a decent net income growth of 19% over the past five years. So, there might be other aspects that are positively influencing earnings growth. Such as - high earnings retention or an efficient management in place. Bear in mind, the company does have a respectable level of ROE. It is just that the industry ROE is higher. So this also provides some context to the earnings growth seen by the company.