Why the Poor Return on Equity?, page-2

GXL has a high level of intangibles because, up until 2014, the company grew almost entirely by acquisition, both in regard to its vet business and its retailing business. By their nature, vet and retailing businesses are quite asset-light (unless the operator owns the real estate, which is not normally the case - the preference is generally to lease), so an acquisition of a profitable but asset-light business will give rise to an intangible as a mechanical accounting outcome. GXL did this to get to scale first, which is an important thing (more so in retailing than in veterinary services), as scale creates a unit cost advantage.

GXL management have very clearly and consistently explained over the last 18 months that they are now at scale and are moving from acquisitive, externally-funded growth, to organic, internally-funded growth. You should read their last 2-3 results presentations.

I can't speak for PETS, but it's much more informative to think about what sort of marginal ROE GXL might derive from each additional dollar of invested capital from this point forward, than it is to look at historical balance sheets. My personal view is that marginal ROE from this point forward is going to be substantially higher than the 9% historical, or whatever the balance sheet shows.