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 measures your bang per buck as an investor. Take 3M (NYSE:MMM), which boasts an ROE of 31%, or Altria (NYSE:MO), which rocked a whopping 87% over the past 12 months. 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.
  • ROE of 25 or greater.
  • Market caps of $500 million or greater.

In the first 20 months since we began tracking our CAPS investment community in November 2006, five-star companies have outperformed the market with average annualized gains of 12%.

Voila! Here's what popped out after I used the scanner recently. You can run the screen, too, but note that the results might be different as the data updates.


Market Cap

Return on Equity (TTM)


$40.5 billion



$34.4 billion



$31.7 billion


Core Laboratories

$1.57 billion


Federated Investors

$1.88 billion


Joy Global (NASDAQ:JOYG)

$2.6 billion


Magellan Midstream

$926 million


OptionsXpress  (NASDAQ:OXPS)

$810 million


Pepsico (NYSE:PEP)

$86.4 billion


Rockwell Collins

$6.5 billion


Schlumberger (NYSE:SLB)

$56 billion


Williams Partners

$773 million


Source: 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 aspects 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 125,000-member-strong investment community help you make better investing decisions.

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Jennifer Schonberger does not own shares of any of the companies mentioned in this article. PepsiCo is a Motley Fool Income Investor selection. Federated Investors and 3M are Inside Value picks. optionsXpress Holdings is both a Stock Advisor and a Motley Fool Hidden Gems Pay Dirt choice. The Motley Fool has a disclosure policy.