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Should You Be Concerned About Hellenic Petroleum S.A.'s (ATH:ELPE) ROE?

Simply Wall St


Hellenic Petroleum has a ROE of 0.9%, based on the last twelve months. One way to conceptualize this, is that for each €1 of shareholders' equity it has, the company made €0.01 in profit.

See our latest analysis for Hellenic Petroleum

How Do I Calculate ROE?

The formula for return on equity is:


Or for Hellenic Petroleum:

0.9% = €22m ÷ €2.4b (Based on the trailing twelve months to September 2019.)

It's easy to understand the 'net profit' part of that equation, but 'shareholders' equity' requires further explanation. It is all the money paid into the company from shareholders, plus any earnings retained. You can calculate shareholders' equity by subtracting the company's total liabilities from its total assets.

What Does ROE Signify?


Does Hellenic Petroleum Have A Good ROE?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. Importantly, this is far from a perfect measure, because companies differ significantly within the same industry classification. As is clear from the image below, Hellenic Petroleum has a lower ROE than the average (10%) in the Oil and Gas industry.

ATSE:ELPE Past Revenue and Net Income, January 11th 2020

That's not what we like to see. We prefer it when the ROE of a company is above the industry average, but it's not the be-all and end-all if it is lower. Still, shareholders might want to check if insiders have been selling.

Why You Should Consider Debt When Looking At ROE


Hellenic Petroleum's Debt And Its 0.9% ROE

It's worth noting the significant use of debt by Hellenic Petroleum, leading to its debt to equity ratio of 1.00. The combination of a rather low ROE and significant use of debt is not particularly appealing. Debt does bring extra risk, so it's only really worthwhile when a company generates some decent returns from it.

The Key Takeaway



But note: Hellenic Petroleum 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.

