How Does Boston Scientific Boost its Returns?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

As investors, we need to understand how our companies truly make their money. A neat trick developed for just that purpose -- the DuPont Formula -- can help us do so.

So in this series we let the DuPont do the work. Let's see what the formula can tell us about Boston Scientific (NYSE: BSX  ) and a few of its peers.

The DuPont Formula can give you a better grasp on exactly where your company is producing its profit, and where it might have a competitive advantage. Named after the company where it was pioneered, the formula breaks down return on equity into three components:

Return on equity = net margin x asset turnover x leverage ratio

What makes each of these components important?

  • High net margins show that a company can get customers to pay more for its products. Luxury-goods companies provide a great example here.
  • High asset turnover indicates that a company needs to invest less of its capital, since it uses its assets more efficiently to generate sales. Service industries, for instance, often lack big capital investments.
  • Finally, the leverage ratio shows how much the company is relying on liabilities to create its profits.

Generally, the higher these numbers, the better. That said, too much debt can sink a company, so beware of companies with very high leverage ratios.

So what does DuPont say about these four companies?


Return on Equity

Net Margin

Asset Turnover

Leverage Ratio

CR Bard 18.8% 11.3% 1.83 0.91
Boston Scientific 3.9% 5.8% 0.35 1.92
AngioDynamics 1.6% 3.0% 0.51 1.07
Hologic 5.8% 9.1% 0.31 2.05

Source: S&P's Capital IQ.

CR Bard (NYSE: BCR  ) offers far higher returns on equity than the other listed companies, thanks to substantially better net margins and asset turnover, while using less leverage than its comparables. Hologic (Nasdaq: HOLX  ) offers the next highest ROE, but its returns are less than half of those offered by CR Bard. While its net margins are only just over 2% lower than CR Bard's, its asset turnover is the lowest of the listed companies. However, it has the highest leverage ratio of the listed companies.

Boston Scientific has the next-highest ROE, at less than 4%. Its net margins are less than 6%, which is more than 3% lower than Hologic's and its asset turnover is not much higher than Hologic's. However, its leverage ratio is second only to Hologic. AngioDynamics (Nasdaq: ANGO  ) has the lowest ROE of the listed companies, with net margins just over half of Boston Scientific's, which has the next lowest net margins. Its asset turnover is also not much better than the Hologic's and Boston Scientific's, but its leverage ratio is much lower than theirs.

Boston Scientific is a producer of medical devices, and competes with companies like Abbott Labs, St. Jude Medical, and Medtronic. Its offerings include a wide range of products, including stents, heart defibrillators, and catheters. Boston Scientific recently brought on Michael Mahoney, the former chairman of Johnson & Johnson's medical device group, as its CEO. However, due to a non-compete clause, Mahoney will not be able to serve as the company's CEO until late 2012. Therefore, they will have to use an interim CEO for a one-year period, making it harder for them to enjoy a smooth transition. Also, while Boston Scientific may benefit from Johnson & Johnson's decision to stop selling drug-eluting stents, the company still faces competition from Medtronic and Abbott Labs in selling these stents.

Using the DuPont formula can often give you some insight into how a company is competing against peers and what type of strategy it's using to juice return on equity. To find more successful investments, dig deeper than the earnings headlines.

If you'd like to add these companies to your Watchlist, or set up a new one, just click below:

Jim Royal, Ph.D., owns shares in J&J. The Motley Fool owns shares of Johnson & Johnson, Abbott Laboratories, St. Jude Medical, and Medtronic. Motley Fool newsletter services have recommended buying shares of Abbott Laboratories and Johnson & Johnson and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1790333, ~/Articles/ArticleHandler.aspx, 10/22/2016 8:11:46 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
BSX $22.82 Down -0.19 -0.83%
Boston Scientific CAPS Rating: ***
ANGO $16.89 Down -0.42 -2.43%
AngioDynamics CAPS Rating: ***
BCR $219.38 Down -0.81 -0.37%
C.R. Bard CAPS Rating: ****
HOLX $38.08 Down -0.39 -1.01%
Hologic CAPS Rating: *****