What level of return on equity is average for a company in the drugs sector?
The drugs sector provides a variety of investing opportunities ranging from major drug manufacturing companies to generic drug companies. The drugs sector includes the drug delivery, drug manufacturers - major, drug manufacturers - other, drug-related products and drugs - generic industries. As of May 12, 2015, using trailing 12-month data, the respective return on equity of these industries are 9.1% for drug delivery, 16.4% for drug manufacturers - major, 19.7% for drug manufacturers - other, 2.8% for drug-related products and 0% for drugs - generic industries.
Fundamental analysis uses return on equity (ROE) to determine the amount of net income a company generates in relation to its shareholders' equity. ROE determines the amount a company generates in net income with shareholders' investments. It is calculated by dividing a company's net income by its shareholders' equity.
The simple average of the drugs sector's ROE is 9.6% ((9.1% + 16.4% + 19.7% + 2.8% + 0%) / 5). This drugs sector ROE comprises the ROE percentages from all small-, mid- and large-cap drug companies.
The average ROE of the drugs sector includes companies with large market capitalizations, such as Pfizer, Johnson & Johnson and GlaxoSmithKline, as well as small-cap stocks such as USANA Health Science and SciClone Pharmaceuticals.
Pfizer has an ROE of 12.67%, Johnson & Johnson 22.03% and GlaxoSmithKline 107.75%. USANA Health Science has an ROE of 29.93% and SciClone Pharmaceuticals 19.26%.