With its stock down 5.7% over the past three months, it is easy to disregard Hawesko Holding (ETR:HAW). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Hawesko Holding'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Hawesko Holding

How Is ROE Calculated?

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 Hawesko Holding is:

10% = €12m ÷ €121m (Based on the trailing twelve months to September 2023).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.10 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

A Side By Side comparison of Hawesko Holding's Earnings Growth And 10% ROE

To begin with, Hawesko Holding seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 13%. This certainly adds some context to Hawesko Holding's moderate 5.2% net income growth seen over the past five years.

As a next step, we compared Hawesko Holding's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 11% in the same period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Hawesko Holding's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.