Switch to:
PetSmart Inc (NAS:PETM)
Return on Equity
30.74% (As of Oct. 2014)

Return on equity is calculated as net income divided by its average shareholder equity. PetSmart Inc's annualized net income for the quarter that ended in Oct. 2014 was \$369 Mil. PetSmart Inc's average shareholder equity for the quarter that ended in Oct. 2014 was \$1,199 Mil. Therefore, PetSmart Inc's annualized return on equity (ROE) for the quarter that ended in Oct. 2014 was 30.74%.

Definition

PetSmart Inc's annualized Return on Equity (ROE) for the fiscal year that ended in Jan. 2014 is calculated as

 ROE = Net Income (A: Jan. 2014 ) / ( (Total Equity (A: Jan. 2013 ) + Total Equity (A: Jan. 2014 )) / 2 ) = 419.52 / ( (1123.592 + 1093.782) / 2 ) = 419.52 / 1108.687 = 37.84 %

PetSmart Inc's annualized Return on Equity (ROE) for the quarter that ended in Oct. 2014 is calculated as

 ROE = Net Income (Q: Oct. 2014 ) / ( (Total Equity (Q: Jul. 2014 ) + Total Equity (Q: Oct. 2014 )) / 2 ) = 368.624 / ( (1159.796 + 1238.846) / 2 ) = 368.624 / 1199.321 = 30.74 %

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

In the calculation of annual return on equity, the net income of the last fiscal year and the average total shareholder equity over the fiscal year are used. In calculating the quarterly data, the Net Income data used here is four times the quarterly (Oct. 2014) net income data. Return on Equity is displayed in the 15-year financial page.

Explanation

Return on Equity (ROE) measures the rate of return on the ownership interest (shareholder's equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are considered desirable.

The factors that affect a companys Return on Equity (ROE) can be illustrated with the Du Pont Formula:

 Return on Equity (ROE) (Q: Oct. 2014 ) = Net Income / Average Shareholder Equity = 368.624 / 1199.321 = (Net Income / Revenue) * (Revenue / Average Total Assets) * (Average Total Assets / Average Equity) = (368.624 / 6956.468) * (6956.468 / 2637.622) * (2637.622 / 1199.321) = Net Profit Margin * Asset Turnover * Leverage Ratio = 5.3 % * 2.6374 * 2.1993 = Return on Assets * Leverage Ratio = 13.98 % * 2.1993 = 30.74 %

Note: The Net Income data used here is four times the quarterly (Oct. 2014) net income data. The Revenue data used here is four times the quarterly (Oct. 2014) revenue data.

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

With this breakdown, it is clear that if a company grows its Net Profit Margin, its Asset Turnover, or its Leverage, it can grow its return on equity.

Be Aware

The net income used here is the net income to common shareholders.

Because a company can increase its return on equity by having more financial leverage, it is important to watch the leverage ratio when investing in high ROE companies. Like ROA, ROE is calculated with only 12 months data. Fluctuations in companys earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective.

Asset light businesses require very few assets to generate very high earnings. Their ROEs can be extremely high.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

PetSmart Inc Annual Data

 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 ROE 19.06 19.06 26.03 18.08 17.12 20.47 24.97 34.21 37.84 34.59

PetSmart Inc Quarterly Data

 Oct12 Jan13 Apr13 Jul13 Oct13 Jan14 Apr14 Jul14 Oct14 Jan15 ROE 28.71 47.01 37.67 33.97 31.36 45.77 38.34 35.18 30.74 40.51
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to \$400 per referral. ( Learn More)