Profitability benchmark · 20 industry sectors
Return on Equity by Industry: 2026 Sector Benchmarks
ROE ranges from 8% in Real Estate (REITs) to 32% in Restaurants — and higher in franchised models. This table shows the median, high-performer, and low-performer return on equity for each of 20 industry sectors — so you can instantly benchmark any company against its peers and understand what drives the spread within each sector.
2026 data · 20 industry sectors
Return on Equity Benchmarks by Sector
| Sector | Median ROE | High Quartile | Low Quartile | Note |
|---|---|---|---|---|
| Software / SaaS | 28% | 45% | 12% | Mature SaaS franchises with low asset bases generate high ROE from retained earnings and buybacks; high-growth names dilute equity faster than earnings compound. |
| Healthcare / Pharma | 18% | 35% | 8% | Branded pharma earns high ROE on patent-protected pricing power; device makers and distributors run lower on heavier manufacturing and distribution asset bases. |
| Financial Services | 13% | 20% | 7% | Well-run banks and exchanges earn 15-20% on equity; capital-heavy insurers and lenders under provision pressure run in the high single digits. |
| Consumer Staples | 28% | 40% | 14% | Pricing-power brands like beverages and household products generate high ROE on stable margins and aggressive buybacks; private-label suppliers land much lower. |
| Technology Hardware | 18% | 30% | 8% | Semiconductor equipment and differentiated components reach 25-30%; contract manufacturers and commoditized OEMs compress to single digits on thin margins. |
| Retail (Specialty) | 22% | 35% | 8% | Category leaders with pricing power and buyback programs hit the mid-30s; promotional, inventory-heavy retailers with weak turns sit below 10%. |
| Retail (Grocery) | 14% | 22% | 5% | Thin margins but high asset turns keep ROE moderate; scale leaders with loyalty programs earn 20%+, subscale or high-shrink operators fall below 10%. |
| Industrial / Manufacturing | 15% | 24% | 6% | Specialty equipment and precision instruments earn the high teens; commodity cyclicals and capital-heavy manufacturers compress near 6-8% at mid-cycle. |
| Energy (E&P) | 14% | 28% | 4% | Upstream ROE tracks oil prices — low-breakeven producers return 25%+ at high prices; high-cost or over-levered names turn negative at the trough. |
| Energy (Downstream / Refining) | 10% | 20% | 2% | Refining ROE is cyclical and crack-spread driven — mid-cycle returns in the low teens, losses during extended compression periods. |
| Utilities | 11% | 14% | 7% | Regulated utilities earn stable but capped ROE around 10-12% — set by regulators; unregulated and merchant generators swing wider based on power prices. |
| Real Estate / REITs | 8% | 14% | 3% | REITs carry heavy equity bases from property holdings, depressing ROE; industrial and data-center REITs outperform on rent growth, retail REITs lag. |
| Telecom | 14% | 22% | 5% | Scale carriers with favorable spectrum positions earn mid-teens ROE; smaller carriers under heavy network capex pressure compress toward single digits. |
| Materials | 12% | 22% | 4% | Specialty chemicals and low-cost miners lead at 20%+ mid-cycle; bulk commodity producers swing to low single digits or losses when prices fall. |
| Aerospace & Defense | 16% | 24% | 7% | Program-based defense primes with recurring aftermarket earn the low-to-mid 20s; development-phase and fixed-price program overrun names sit well below. |
| Automotive | 11% | 18% | 2% | Auto OEMs run thin margins on heavy assets — premium brands with pricing power reach the high teens; volume OEMs and EV transition names compress toward breakeven. |
| Restaurants / Food Service | 32% | 55% | 8% | Franchised fast-food models generate extraordinarily high ROE on minimal equity bases; company-owned, labor-heavy operators sit in the high single digits. |
| Media & Entertainment | 13% | 24% | 4% | Asset-light streaming and gaming franchises with content libraries earn 20%+; production-heavy studios and legacy distributors compress on high fixed costs. |
| Transportation / Logistics | 14% | 24% | 5% | Asset-light freight brokers and premium parcel carriers earn the low 20s; capital-intensive airlines and trucking compress toward breakeven at cycle lows. |
| Semiconductors | 22% | 38% | 8% | Leading-edge fabless chip designers earn 35%+ on IP-heavy, asset-light models; integrated device manufacturers with heavy fabs run lower on equity bases. |
How to Use Return on Equity Sector Benchmarks
Return on equity — net income divided by shareholders' equity — measures how much profit a company generates for every dollar of equity capital. It captures the combined effect of profitability, asset efficiency, and financial leverage in a single ratio, which is why DuPont analysis decomposes ROE into those three drivers. It pairs naturally with capital efficiency in our return on invested capital benchmarks by sector and with the bottom-line profitability view in our net profit margin by industry sector benchmarks.
Step 1: Find the right sector row. ROE norms vary by more than 40 percentage points across sectors. A 20% ROE is adequate for a software company but exceptional for a utility, and meaningless for a franchised restaurant chain where ROE regularly exceeds 40%. Always identify the industry first, then compare to the sector median and the high/low range.
Step 2: Check the DuPont drivers. ROE can be high for very different reasons. A company with a high net margin on a low asset base earns high ROE from operational quality. A company with thin margins but very high asset turns earns high ROE from capital efficiency. A company with modest returns but high leverage earns high ROE from financial engineering. Only the first two are durable — leverage-driven ROE is fragile in downturns.
Step 3: Compare ROE to ROIC. Return on invested capital strips out leverage by measuring returns on all permanent capital, not just equity. If a company's ROE is materially higher than its ROIC, leverage is doing much of the work. Converging ROE and ROIC — both high — signals genuine operational advantage rather than financial engineering.
Step 4: Look at the trend. Expanding ROE over three to five years — especially when ROIC is rising in parallel — suggests the business is compounding retained earnings at an increasing rate. Compressing ROE deserves investigation: is it margin pressure, dilution from equity issuance, or a rising equity base from retained earnings that hasn't yet been redeployed productively?
What Drives Each Sector's Return on Equity
Restaurants / Food Service (32% median)
Franchised fast-food models generate the highest ROE in the market because they operate on nearly zero equity — franchisees own the physical assets while the franchisor collects royalties. Years of buybacks compress equity further. Company-operated, labor-heavy restaurants sit in the high single digits — the same economics look very different without the franchise model.
Software / SaaS & Consumer Staples (28% median each)
Software earns high ROE on asset-light subscription economics and aggressive buyback programs. Consumer staples brands — beverages, household products — earn high ROE from pricing power and buybacks on stable margins. Both are durable: the moat is the brand or the software lock-in, not leverage.
Semiconductors (22% median)
Fabless chip designers earn 35%+ on IP-heavy, asset-light models — design without the fab means minimal equity tied up in manufacturing. Integrated device manufacturers with heavy foundry assets run lower on larger equity bases despite strong margins.
Retail, Healthcare, Technology Hardware (18–22% median)
Category-leading retailers with pricing power and buyback programs hit the mid-30s; promotional operators compress. Branded pharma earns on patent-protected pricing; device makers run lower on heavier manufacturing assets. Tech hardware leaders reach 25–30%; contract manufacturers sit below 10%.
Financial Services, Industrials, Energy (10–16% median)
Well-run banks and exchanges earn 15–20% on equity; capital-heavy insurers under provision pressure run in the high single digits. Specialty industrial equipment earns the high teens; commodity cyclicals compress at the trough. E&P ROE tracks oil prices — high at the peak, near zero or negative at the trough.
Utilities & Real Estate (8–11% median)
Regulated utilities earn stable but capped ROE around 10–12% — set by regulators rather than the market. REITs carry heavy equity bases from property holdings, depressing ROE to 8% despite adequate cash yields. Industrial and data-center REITs lead; retail REITs lag. Neither sector is impaired — ROE is structurally anchored by regulatory caps and asset bases.
Common ROE Analysis Mistakes
Mistake: Ignoring financial leverage
A company with heavy debt has a smaller equity base, which mechanically inflates ROE. A leveraged buyout target can show 30%+ ROE not because it earns exceptional returns, but because its equity is thin relative to its assets. Always check debt-to-equity or net debt alongside ROE — and cross-check against ROIC to see how much leverage is contributing.
Mistake: Cross-sector comparison
Comparing a restaurant franchise's 40% ROE to a utility's 11% ROE and concluding the utility is "less efficient" is a category error. Utilities are regulated at fixed returns; restaurants operate asset-light franchise models. These are structural differences, not evidence of better or worse management. ROE benchmarking only produces valid signals within the same sector.
Mistake: Confusing ROE with ROIC
ROE measures returns on equity capital only; ROIC measures returns on all permanent capital regardless of source. A company that funds growth with debt will show rising ROE even if its ROIC is flat, because debt expands the asset base without expanding the equity denominator. Use ROE to understand equity holder returns; use ROIC to assess business quality independent of capital structure.
Mistake: Reading one-year spikes as durable
In Energy, Materials, and Cyclicals, ROE can spike to 25%+ at commodity price peaks and compress to near zero or negative at the trough. Anchoring a valuation to a peak-cycle ROE overstates normalized equity returns. Use a mid-cycle or through-the-cycle average for capital allocation decisions in cyclical sectors, not the most recent print.
Related Benchmarks
Return on equity is one lens in the capital efficiency picture. Pair it with the two natural companions — ROIC for a leverage-neutral view of business quality, and net margin to see how much of each revenue dollar drives the equity returns you're benchmarking:
- Return on invested capital benchmarks by sector — measures capital efficiency without the leverage effect; the cleanest test of business quality.
- Net profit margin by industry sector benchmarks — bottom-line profitability drives ROE via the DuPont margin component.
Common questions
Return on Equity by Industry — answered directly.
What is a good return on equity by industry?
A good ROE depends entirely on the sector. Franchised restaurant chains regularly post 40–55% ROE on minimal equity bases, while utilities are capped near 11–14% by regulators. The right benchmark is always the sector median — a bank at 13% ROE is performing normally; a software company at 13% is underperforming its peers. Within each sector, high performers typically have pricing power, aggressive buyback programs, low asset intensity, or disciplined capital allocation that compounds equity returns faster than peers.
How does DuPont analysis break down ROE?
DuPont decomposition splits ROE into three drivers: net profit margin (how much of each revenue dollar reaches net income), asset turnover (how efficiently assets generate revenue), and financial leverage (how much of assets are funded by equity). A company can have a high ROE from any combination — a retailer with thin margins but high asset turns, or a pharma company with fat margins and low leverage, can both hit 20%+ ROE through different paths. DuPont helps diagnose whether ROE is driven by operational quality or financial engineering.
What is the difference between ROE and ROIC?
Return on equity (ROE) divides net income by shareholders' equity, measuring returns to equity holders specifically. Return on invested capital (ROIC) divides NOPAT (net operating profit after tax) by total invested capital — equity plus net debt — measuring returns on all permanent capital. ROE can be inflated by leverage because debt reduces the equity base; ROIC is leverage-neutral. For capital structure-independent quality assessment, ROIC is the cleaner signal. For equity-holder perspective, ROE is more direct. The two metrics together tell the full story.
Why do restaurant companies have such high ROE?
Franchised fast-food companies generate 40–55% ROE because they operate on nearly zero equity. Under franchise models, the franchisee owns the real estate and equipment — the franchisor collects royalties on revenue with minimal assets on the balance sheet. Years of aggressive share buybacks reduce equity further, sometimes to near-zero or even negative. The ROE formula divides earnings by this tiny equity base, producing extraordinary-looking percentages. This is a legitimate business model advantage — asset-light franchising — but the metric looks extreme compared to capital-intensive sectors.
Is a higher ROE always better?
Not always. Extremely high ROE can result from excessive financial leverage rather than operational excellence — a company that borrows heavily reduces its equity base, inflating ROE without improving underlying returns. Negative equity from buybacks can make ROE undefined or misleading. Always check ROE alongside ROIC (to strip out leverage) and the debt-to-equity ratio to distinguish quality-driven high ROE from leverage-driven high ROE. Within a sector, a sustainably high ROE with low leverage is the most credible signal of genuine competitive advantage.
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