With its stock down 10% over the past month, it is easy to disregard ATOSS Software (ETR:AOF). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study ATOSS Software's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for ATOSS Software

How To 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 ATOSS Software is:

58% = €36m ÷ €62m (Based on the trailing twelve months to December 2023).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.58 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 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.

ATOSS Software's Earnings Growth And 58% ROE

To begin with, ATOSS Software has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 20% the company's ROE is quite impressive. This probably laid the groundwork for ATOSS Software's moderate 20% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that ATOSS Software's growth is quite high when compared to the industry average growth of 16% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about ATOSS Software's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.