Should Birkenstock Holding Plc (NYSE:BIRK) Focus On Improving This Fundamental Metric?

Should Birkenstock Holding Plc (NYSE:BIRK) Focus On Improving This Fundamental Metric?

Simply Wall St ·  04/12 09:23

Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). To keep the lesson grounded in practicality, we'll use ROE to better understand Birkenstock Holding plc (NYSE:BIRK).


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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.


How Do You Calculate Return On Equity?


The formula for ROE is:

ROE 的公式是:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

股本回报率 = 净利润(来自持续经营业务)÷ 股东权益

So, based on the above formula, the ROE for Birkenstock Holding is:


3.1% = €77m ÷ €2.5b (Based on the trailing twelve months to December 2023).

3.1% = 7700万欧元 ÷ 25亿欧元(基于截至2023年12月的过去十二个月)。

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 $0.03 in profit.

“回报” 是企业在过去一年中获得的收入。将其概念化的一种方法是,公司每拥有1美元的股东资本,就能获得0.03美元的利润。

Does Birkenstock Holding Have A Good ROE?


One simple way to determine if a company has a good return on equity is to compare it to the average for its industry. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. If you look at the image below, you can see Birkenstock Holding has a lower ROE than the average (13%) in the Luxury industry classification.


NYSE:BIRK Return on Equity April 12th 2024
纽约证券交易所:BIRK 股本回报率 2024 年 4 月 12 日

Unfortunately, that's sub-optimal. That being said, a low ROE is not always a bad thing, especially if the company has low leverage as this still leaves room for improvement if the company were to take on more debt. When a company has low ROE but high debt levels, we would be cautious as the risk involved is too high. To know the 2 risks we have identified for Birkenstock Holding visit our risks dashboard for free.


Why You Should Consider Debt When Looking At ROE


Most companies need money -- from somewhere -- to grow their profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.


Combining Birkenstock Holding's Debt And Its 3.1% Return On Equity


Although Birkenstock Holding does use debt, its debt to equity ratio of 0.53 is still low. Its ROE is quite low, and the company already has some debt, so surely shareholders are hoping for an improvement. Careful use of debt to boost returns is often very good for shareholders. However, it could reduce the company's ability to take advantage of future opportunities.




Return on equity is one way we can compare its business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. If two companies have around the same level of debt to equity, and one has a higher ROE, I'd generally prefer the one with higher ROE.


Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. So you might want to take a peek at this data-rich interactive graph of forecasts for the company.


Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.


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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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Simply Wall St的这篇文章本质上是笼统的。我们仅使用公正的方法根据历史数据和分析师的预测提供评论,我们的文章无意作为财务建议。它不构成买入或卖出任何股票的建议,也没有考虑到您的目标或财务状况。我们的目标是为您提供由基本数据驱动的长期重点分析。请注意,我们的分析可能不考虑最新的价格敏感型公司公告或定性材料。简而言之,华尔街没有持有任何上述股票的头寸。

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