Planning on starting a business that will require a significant initial investment?
Before you do, you might want to consider the average return on equity of different industries in the U.S. This metric, a measurement of how efficiently a company is growing profit, is calculated by dividing net profit by average equity, which is the value of assets after all liabilities are paid for in a specific period.
The top U.S. industries based on return on equity during the past 12 month include:
- Offices of dentists and other health practitioners
- Accounting and legal firms
- Offices of physicians
Nine of the top 10 private company industries were healthcare industries and professional, scientific, and technical services industries. Service industries generally require a high degree of specialized knowledge or skill and are able to generate a higher return on equity, says Sageworks analyst Kevin Abbas, adding that he doesn't expect a large shift in this list in the near future.
The average return on equity for all private companies during the past 12 months was 41.7 percent, while industries in the top 10 list generated a return on equity ranging from 65 percent to 109 percent.
Even during recessionary periods, service industries tend to do quite well because their services are required no matter the economic climate. For this reason, entrepreneurs might want to explore these industries for business ideas.
While budding entrepreneurs might use this information to think of ideas for businesses, seasoned entrepreneurs should be aware of the return on equity for their industry as well. Even if your industry isn't represented on this list, you may want to find out what the average return on equity is for your sector, Abbas says. If the figure is low--and you're outperforming the average company in your industry--you might find an opportunity to differentiate yourself in the eyes of potential investors.
Check out Sageworks's list below of the top 10 industries by return on equity.