Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0779
    -0.0014 (-0.13%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • dólar/libra

    1.2620
    -0.0002 (-0.02%)
     
  • USD/JPY

    151.4020
    +0.0300 (+0.02%)
     
  • Bitcoin USD

    70,435.16
    +194.55 (+0.28%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

A Closer Look At SII (Société pour l'Informatique Industrielle) Société Anonyme's (EPA:SII) Impressive ROE

While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. We'll use ROE to examine SII (Société pour l'Informatique Industrielle) Société Anonyme (EPA:SII), by way of a worked example.

Over the last twelve months SII (Société pour l'Informatique Industrielle) Société Anonyme has recorded a ROE of 19%. One way to conceptualize this, is that for each €1 of shareholders' equity it has, the company made €0.19 in profit.

View our latest analysis for SII (Société pour l'Informatique Industrielle) Société Anonyme

How Do You Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit ÷ Shareholders' Equity

Or for SII (Société pour l'Informatique Industrielle) Société Anonyme:

19% = €31m ÷ €162m (Based on the trailing twelve months to March 2019.)

Most know that net profit is the total earnings after all expenses, but the concept of shareholders' equity is a little more complicated. It is the capital paid in by shareholders, plus any retained earnings. You can calculate shareholders' equity by subtracting the company's total liabilities from its total assets.

What Does Return On Equity Mean?

ROE measures a company's profitability against the profit it retains, and any outside investments. The 'return' is the yearly profit. That means that the higher the ROE, the more profitable the company is. So, as a general rule, a high ROE is a good thing. That means ROE can be used to compare two businesses.

Does SII (Société pour l'Informatique Industrielle) Société Anonyme Have A Good Return On Equity?

One simple way to determine if a company has a good return on equity is to compare it to the average for its industry. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. As is clear from the image below, SII (Société pour l'Informatique Industrielle) Société Anonyme has a better ROE than the average (12%) in the IT industry.

ENXTPA:SII Past Revenue and Net Income, November 22nd 2019
ENXTPA:SII Past Revenue and Net Income, November 22nd 2019

That's clearly a positive. In my book, a high ROE almost always warrants a closer look. For example you might check if insiders are buying shares.

Why You Should Consider Debt When Looking At ROE

Companies usually need to invest money to grow their profits. That cash can come from retained earnings, issuing new shares (equity), or debt. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the use of debt will improve the returns, but will not change the equity. In this manner the use of debt will boost ROE, even though the core economics of the business stay the same.

SII (Société pour l'Informatique Industrielle) Société Anonyme's Debt And Its 19% ROE

SII (Société pour l'Informatique Industrielle) Société Anonyme has a debt to equity ratio of 0.28, which is far from excessive. The fact that it achieved a fairly good ROE with only modest debt suggests the business might be worth putting on your watchlist. Conservative use of debt to boost returns is usually a good move for shareholders, though it does leave the company more exposed to interest rate rises.

In Summary

Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. In my book the highest quality companies have high return on equity, despite low debt. All else being equal, a higher ROE is better.

But ROE is just one piece of a bigger puzzle, since high quality businesses often trade on high multiples of earnings. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. So you might want to check this FREE visualization of analyst forecasts for the company.

But note: SII (Société pour l'Informatique Industrielle) Société Anonyme may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

Advertisement