Understanding ROE (Part 7)

In Part 6, I discussed the misleading return on equity (ROE) for SBUX. Today I want to look at Domino’s Pizza (DPZ).

According to Google AI, ROE for DPZ is as follows according to six different sources:

• 15.4% TTM as of Apr 2026 per FinanceCharts.
• -15.4% TTM based on -$3.9B shareholder equity per Wisesheets.
• 6.2% per Danelfin.
• Distorted by low equity with return on assets (ROA) at 35.1% per ChartMill.
• -10.7% in ’26 per MarketScreener.
• Distorted by negative [shareholder] equity and therefore N/A per PEvaluation.

While negative ROE usually means a company is losing money, DPZ has negative shareholder equity rather than negative profit. The company has aggressively used debt to fund massive share buybacks and dividends. The “asset-light” model results in liabilities exceeding assets with a shareholder equity of -$3.9B. Net income (’25) is +$602M, though. Simply Wall Street notes that DPZ maintains a healthy interest coverage ratio of 4.9x to 5.3x suggesting it easily pays the interest on its debt.

Because DPZ ROE is distorted by negative shareholder equity like SBUX, we may look to ROA or return on invested capital (ROIC). ROA > 35% outperforms nearly all industry peers.

ROA seems “too good to be true” (see Part 4) and may also be distorted. ROA is high primarily because of an asset-light franchise model, not just raw profitability. Franchising means the massive real estate and equipment costs of 20,000+ locations are not on the balance sheet (total assets only $1.7B). Despite owning few stores, DPZ collects high-margin royalties and supply chain fees creating a relatively large net income divided by a very small asset base.

Articles at Business Model Mastery and Restaurant Business compare DPZ with McDonald’s (MCD): two companies with heavy debt but different asset structures leading to vastly different ROA. MCD ROA is 14.4% due to ownership of massive real estate. Owning land and buildings for most locations results in a $60B total assets leading some to describe MCD as a REIT disguised as a burger chain. Both have negative ROE (-478% for MCD) due to debt and share buybacks.

Where negative shareholder equity breaks ROE and an ultra-low asset base inflates ROA, DPZ ROIC remains stable. ROA uses net income in its numerator: after interest expenses are paid. DPZ has massive debt and huge interest payments that make the business look less efficient. ROIC ignores interest by using net operating profit after tax. This isolates the pizza business performance from the “noise” of how it is funded. ROA also falls prey to the “lazy cash” problem because total assets include things that don’t actually help make pizza (e.g. excess cash in a bank account, old unused equipment) that inflate the denominator and lower the score. ROIC ignores non-operating items thereby giving a tighter view of management’s skill.

Where ROA is better for asset-heavy firms like banks and factories, ROIC ~50-60% shows DPZ earning far more than its weighted average cost of capital (~9%) and therefore a significant value generator despite an unusual balance sheet.