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 essentially measures your bang per buck as an investor.

Take Western Union (NYSE:WU), which rocks a whopping ROE of 263%, as an example. Or look at H.J. Heinz (NYSE:HNZ), which boasts an ROE of 55.5%. The higher the ratio, 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. The more efficient the company is, the better.

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 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 recently:

Company

Market Cap (in billions)

Return on Equity (TTM)

Alliance Resource Partners (NASDAQ:ARLP)

$1.42

55.1%

Bristol-Myers Squibb (NYSE:BMY)

$49.8

32.7%

Gilead Sciences (NYSE:GILD)

$42.3

42.5%

GlaxoSmithKline (NYSE:GSK)

$111.6

28.4%

H.J. Heinz Company

$13.6

55.5%

Johnson & Johnson (NYSE:JNJ)

$174.3

25.4%

Western Union

$13.1

263%

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, 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.

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