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 Colgate-Palmolive
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.
Since we began tracking our CAPS investment community in November 2006, five-star companies have outperformed the market with average annualized gains of 12%.
And voila:
Company |
Market Capitalization |
Return on Equity (TTM) |
---|---|---|
Accenture |
$18.4B |
66.6 |
Alliance Resource Partners |
$840.3M |
46.2 |
Amerigas Partners |
$1.5B |
50.6 |
BHP Billiton |
$102B |
40.1 |
Core Laboratories |
$1.4B |
119 |
Corning |
$13.3B |
42.6 |
Foster Wheeler |
$3.1B |
53.1 |
Highveld Steel & Vanadium |
$580.7M |
69.8 |
Philip Morris International |
$81B |
51.8 |
Southern Copper |
$11B |
47.3 |
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 ratio, will also help you determine if a company is right for your portfolio.
Start increasing the efficiency of your investments at Motley Fool CAPS today. Let the collective wisdom of our 120,000-member-strong investment community help you make better investing decisions.
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