Exasol (ETR:EXL) has had a rough three months with its share price down 17%. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Exasol’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. In simpler terms, it measures the profitability of a company in relation to shareholder’s 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 Exasol is:
31% = €1.9m ÷ €6.0m (Based on the trailing twelve months to June 2025).
The ‘return’ refers to a company’s earnings over the last year. So, this means that for every €1 of its shareholder’s investments, the company generates a profit of €0.31.
See our latest analysis for Exasol
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.
First thing first, we like that Exasol has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 23% also doesn’t go unnoticed by us. As a result, Exasol’s exceptional 46% net income growth seen over the past five years, doesn’t come as a surprise.
Next, on comparing with the industry net income growth, we found that Exasol’s growth is quite high when compared to the industry average growth of 11% in the same period, which is great to see.
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. 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 Exasol is trading on a high P/E or a low P/E, relative to its industry.