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 Philip Morris International
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) |
---|---|---|
3M |
$54.3 |
26.3% |
Abbott Laboratories |
$79.3 |
28.9% |
Amerigas Partners |
$2.2 |
55.8% |
Diana Shipping |
$1.1 |
28.6% |
Fluor Corp. |
$8.91 |
25.5% |
Foster Wheeler |
$4.02 |
68.0% |
PepsiCo |
$95.2 |
34.1% |
Philip Morris International |
$94.92 |
99.6% |
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 one worth buying.
Start increasing the efficiency of your investments at Motley Fool CAPS today. Let the collective wisdom of our 140,000-member-strong investment community help you make better investing decisions.
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