With its stock down 3.9% over the past three months, it is easy to disregard Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien (ETR:BVB). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's ROE.

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 Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien

How Do You Calculate Return On Equity?

Return on equity 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 Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien is:

11% = €39m ÷ €353m (Based on the trailing twelve months to December 2023).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.11 in profit.

What Is The Relationship Between ROE And 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.

A Side By Side comparison of Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Earnings Growth And 11% ROE

At first glance, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien seems to have a decent ROE. Yet, the fact that the company's ROE is lower than the industry average of 18% does temper our expectations. However, the moderate 5.7% net income growth seen by Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien over the past five years is definitely a positive. So, there might be other aspects that are positively influencing earnings growth. For instance, the company has a low payout ratio or is being managed efficiently. Bear in mind, the company does have a respectable level of ROE. It is just that the industry ROE is higher. So this also does lend some color to the fairly high earnings growth seen by the company.