7 of the Most Efficient Companies on the Planet

These days, it's not all about working hard. It's more about working hard and efficiently. Why not apply that strategy to your investments?

To measure a company's efficiency, you can examine its return on equity (ROE). This ratio is composed of a company's profit margin multiplied by its asset turnover, multiplied by its financial leverage. It measures how efficiently the company employs its owners' capital. In a nutshell, it measures your bang per buck as an investor.

Take Philip Morris International (NYSE: PM  ) , which rocks a whopping ROE of 95.8% over the past four quarters. Or look at Foster Wheeler (Nasdaq: FWLT  ) , which boasts an ROE of 52.4%.

Companies can juice their ROE by employing more debt, so it's important to consider a company's debt level when looking at ROE. All else being equal, though, the higher the ROE, the better -- a higher ratio means a more efficient company, which means a more effective executive team when it comes to managing the business. It's companies like these you should consider for your portfolio.

To uncover some of the most efficient companies around, I ran a screen using The Motley Fool's CAPS screening tool. I looked for companies with:

  • CAPS ratings of five stars, the highest granted by our CAPS community.
  • ROEs of 25% or greater.
  • Market caps of $500 million or greater.

And voila! Here's what popped up from my screen:

Company

Market Cap (in billions)

Return on Equity (TTM)

Foster Wheeler

$3.5

52.4%

Gilead Sciences (Nasdaq: GILD  )

$43.1

42.5%

Infosys Technologies (Nasdaq: INFY  )

$32.0

26.8%

Partner Communications (Nasdaq: PTNR  )

$3.5

50.8%

PepsiCo (NYSE: PEP  )

$97.4

34.1%

Philip Morris International

$94.8

95.8%

Data from Motley Fool CAPS. TTM = trailing 12 months.

While the stock screener is a great tool, it should only be the first step in your investment research. Double-checking why a company might have a really high ROE is a good first step. For instance, Philip Morris' ROE is so high because the level of equity has been lowered thanks to a massive share buyback program over the past couple of years.

Further steps -- for example, examining other levers of specific companies, such as return on invested capital, liquidity, and debt-to-equity ratios -- will also help you determine if a company is right for your portfolio. When you include those other metrics in your analysis, you'll get a fuller picture of whether that company is worth buying.

Start increasing the efficiency of your investments at Motley Fool CAPS today. Let the collective wisdom of our 145,000-member-strong investment community help you make better investing decisions.

For related Foolishness:

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. You can follow her on Twitter. Philip Morris International is a Motley Fool Global Gains recommendation. Pepsi and Partner Communications are Income Investor picks. The Motley Fool has a disclosure policy.


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