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.

Two people looking at a panel of electronic screens that display charts and graphs

Image source: Getty Images.

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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