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ASTARTA Holding NV. (WSE:AST): Can It Deliver A Superior ROE To The Industry?

ASTARTA Holding NV. (WSE:AST) generated a below-average return on equity of 8.37% in the past 12 months, while its industry returned 9.44%. Though AST’s recent performance is underwhelming, it is useful to understand what ROE is made up of and how it should be interpreted. Knowing these components can change your views on AST’s below-average returns. Today I will look at how components such as financial leverage can influence ROE which may impact the sustainability of AST’s returns. See our latest analysis for ASTARTA Holding

What you must know about ROE

Firstly, Return on Equity, or ROE, is simply the percentage of last years’ earning against the book value of shareholders’ equity. It essentially shows how much the company can generate in earnings given the amount of equity it has raised. In most cases, a higher ROE is preferred; however, there are many other factors we must consider prior to making any investment decisions.

Return on Equity = Net Profit ÷ Shareholders Equity

ROE is measured against cost of equity in order to determine the efficiency of ASTARTA Holding’s equity capital deployed. Its cost of equity is 8.67%. Since ASTARTA Holding’s return does not cover its cost, with a difference of -0.29%, this means its current use of equity is not efficient and not sustainable. Very simply, ASTARTA Holding pays more for its capital than what it generates in return. ROE can be split up into three useful ratios: net profit margin, asset turnover, and financial leverage. This is called the Dupont Formula:

Dupont Formula

ROE = profit margin × asset turnover × financial leverage

ROE = (annual net profit ÷ sales) × (sales ÷ assets) × (assets ÷ shareholders’ equity)

ROE = annual net profit ÷ shareholders’ equity

WSE:AST Last Perf May 26th 18
WSE:AST Last Perf May 26th 18

Essentially, profit margin shows how much money the company makes after paying for all its expenses. Asset turnover shows how much revenue ASTARTA Holding can generate with its current asset base. The most interesting ratio, and reflective of sustainability of its ROE, is financial leverage. Since financial leverage can artificially inflate ROE, we need to look at how much debt ASTARTA Holding currently has. At 59.45%, ASTARTA Holding’s debt-to-equity ratio appears sensible and indicates its ROE is generated from its capacity to increase profit without a large debt burden.

WSE:AST Historical Debt May 26th 18
WSE:AST Historical Debt May 26th 18

Next Steps:

ROE is one of many ratios which meaningfully dissects financial statements, which illustrates the quality of a company. ASTARTA Holding’s below-industry ROE is disappointing, furthermore, its returns were not even high enough to cover its own cost of equity. However, ROE is not likely to be inflated by excessive debt funding, giving shareholders more conviction in the sustainability of returns, which has headroom to increase further. Although ROE can be a useful metric, it is only a small part of diligent research.

For ASTARTA Holding, there are three key aspects you should look at:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Future Earnings: How does ASTARTA Holding’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of ASTARTA Holding? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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