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    A Closer Look At Naturgy Energy Group, S.A.'s (BME:NTGY) Impressive ROE

    Simply Wall St·01/01/2026 05:47:54
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    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. By way of learning-by-doing, we'll look at ROE to gain a better understanding of Naturgy Energy Group, S.A. (BME:NTGY).

    Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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    How Do You Calculate Return On 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 Naturgy Energy Group is:

    22% = €2.3b ÷ €10b (Based on the trailing twelve months to September 2025).

    The 'return' is the income the business earned over the last year. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.22.

    Check out our latest analysis for Naturgy Energy Group

    Does Naturgy Energy Group 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. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. Pleasingly, Naturgy Energy Group has a superior ROE than the average (14%) in the Gas Utilities industry.

    roe
    BME:NTGY Return on Equity January 1st 2026

    That's what we like to see. With that said, a high ROE doesn't always indicate high profitability. Aside from changes in net income, a high ROE can also be the outcome of high debt relative to equity, which indicates risk. Our risks dashboardshould have the 3 risks we have identified for Naturgy Energy Group.

    How Does Debt Impact ROE?

    Most companies need money -- from somewhere -- to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the first and second cases, the ROE will reflect this use of cash for investment in the business. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. That will make the ROE look better than if no debt was used.

    Combining Naturgy Energy Group's Debt And Its 22% Return On Equity

    It's worth noting the high use of debt by Naturgy Energy Group, leading to its debt to equity ratio of 1.63. While no doubt that its ROE is impressive, we would have been even more impressed had the company achieved this with lower debt. Debt does bring extra risk, so it's only really worthwhile when a company generates some decent returns from it.

    Summary

    Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. A company that can achieve a high return on equity without debt could be considered a high quality business. All else being equal, a higher ROE is better.

    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. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So you might want to check this FREE visualization of analyst forecasts for the company.

    If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity and low debt.