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The retail sector encompasses a number of industry categories including automotive, building supply, distributors, general, grocery and food, and online and special lines retail. These have returns on equity (ROE), of 36.28, 0.27, 9.67, 20.64, 30.63, 27.05, and -0.64, respectively.
The figures are based on data published by New York University’s Leonard N. Stern School of Business as of January 2021.
The average ROE for the retail sector is 17.7%, or (36.28 + 0.27 + 9.67 + 20.64 + 30.63 + 27.05 + -0.64) / 7.
Key Takeaways
- ROE is calculated by dividing a company’s net income by its shareholders’ equity.
- This figure is useful for comparing the relative profitability of companies in the same industry within the retail sector, such as automakers or grocery.
- In fundamental analysis, ROE is used to calculate the profit a company creates using its shareholders’ equity.
Calculating Return on Equity
ROE is used in fundamental analysis to determine the amount of profit a company generates with its shareholders’ equity.
It is useful for investors as a way to compare the profitability of one company to another within the same sector or industry.
ROE is calculated by dividing a company’s net income by its shareholders’ equity. A company’s net income is reported on its income statement, while its total shareholders’ equity is reported on its balance sheet.
Explaining the Average ROE in the Retail Sector
Companies within each industry included in the retail sector have their own returns on equity, which should be taken into consideration when investing in them individually.
For example, Walmart’s ROE as of April 30, 2021, was 14.38%.
Macy’s ROE for the same period was -10.62%. When compared to companies in the same industry and retail sector, such as Walmart, JC Macy’s is not profitable. In fact, its income for the period was -0.26 billion.
An investor considering a stock in the retail sector might conclude that Walmart is a better pick than Macy’s.