These days, it's not all about working hard. It's more about working hard and efficiently. So 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 essentially measures your bang per buck as an investor. Take GlaxoSmithKline
To uncover some of the most efficient companies out there, I did a screen using the Motley Fool's CAPS screening tool. I looked for companies with:
- CAPS ratings of five stars, the highest ratings from 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 recently:
Company |
Market Cap (billions) |
Return on Equity (TTM) |
---|---|---|
Agrium |
$6.98 |
32.2% |
Alliance Holdings |
$1.23 |
56.0% |
GlaxoSmithKline |
$80.26 |
59.4% |
Huntsman |
$1.36 |
37.0% |
Johnson & Johnson |
$149.10 |
30.2% |
Schlumberger |
$65.53 |
29.9% |
Transocean |
$23.62 |
25.4% |
Unilever |
$28.40 |
50.5% |
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. 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, it will give you a fuller picture of whether that company is one worth buying.
Start increasing the efficiency of your investments at Motley Fool CAPS today. Let the collective wisdom of our 130,000-member-strong investment community help you make better investing decisions.
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