The retail sector includes automotive, building supply, distributors, general, grocery and food, and online and special lines retail industries, which have returns on equity (ROEs), of 36.28, 0.27, 9.67, 20.64, 30.63, 27.05, and -0.64, respectively. These figures are based on data published by the NYU Leonard N. Stern School of Business as of January 2021. The arithmetic 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.
Calculating Return on Equity
ROE is used in fundamental analysis to determine the amount of profits a company generates with its shareholders' equity and is calculated by dividing a company's net income by the equity. A company's net income is reported on its income statement, while a company's total shareholders' equity is reported on its balance sheet. ROE is useful for investors to compare the profitability of one company to another within the same sector or industry.
Explaining the Average Return on Equity of 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, 2018 was 11.44%, whereas JC Penney's ROE was -0.53%.
When compared to companies in the same industry and retail sector, such as Walmart, JC Penney is not profitable and reported a loss on its income statement for the period ending April 30, 2018. Therefore, investors may opt out of investing in JC Penney due to its inability to generate a profit and its ranking well below the industry average.