Below are averages for ROE (return on common equity, ROCE) drivers by industry. Notice the following:
- High ATO comes with low operating PM (Restaurants, Business services, Trucking, Food stores, General stores, Wholesale durable goods)
- Low ATO comes with high operating PM (Pipelines, Communications, Utilities, Oil and Gas, Railroads)
- High financing leverage (FLEV) comes with low operating liability leverage (OLLEV) (Pipelines, Communications, Utilities, Hotels)
- Lower levered profitability (ROCE) is largely due to lower RNOA, not lower leverage.
These relationships are just averages, not necessary for individual firms.
This complements the ATO-PM plots in chapter 7. The graph below is similar to the one in chapter 7 but with different industries indicated:
