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 (NYSE:CL), which rocks a whopping ROE of 83, as an example. Or look at IBM, which boasts an ROE of 43. The higher the ratio, the better -- a higher ratio means a more efficient company, and a more effective executive team when it comes to managing the business. It's these sorts of companies you should consider for your portfolio.

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:


Market Capitalization

Return on Equity (TTM)




Alliance Resource Partners (NASDAQ:ARLP)



Amerigas Partners



BHP Billiton (NYSE:BHP)



Core Laboratories



Corning (NYSE:GLW)



Foster Wheeler (NASDAQ:FWLT)



Highveld Steel & Vanadium



Philip Morris International (NYSE:PM)



Southern Copper (NYSE:PCU)



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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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.