These days, it's not just 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.

More simply put, it measures your bang per buck as an investor. Take Western Union (NYSE: WU), which rocks a whopping ROE of 240% over the past four quarters, or Alliance Resource Partners (Nasdaq: ARLP), which boasts an ROE of 60.1% -- a lot of concentrated bang in both stocks.

Companies can juice their ROE by employing more debt, so it is important to consider a company's debt level when looking at ROE. All things being equal, though, the higher the ROE, the better: A higher ratio means a more efficient company, which in turn means a more effective executive team managing the business. It's companies like these you should consider for your portfolio.

To uncover some of the most efficient companies around, I ran a screen using The Motley Fool's CAPS screening tool. I looked for companies with:

  • CAPS ratings of five stars, the highest 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:


Market Cap (in billions)

Return on Equity (TTM)

Abbott Laboratories (NYSE: ABT)



Alliance Holdings (Nasdaq: AHGP)



Alliance Resource Partners



Constellation Energy Group (NYSE: CEG)



Elbit Systems (Nasdaq: ESLT)



Western Union



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 worth buying.

Start increasing the efficiency of your investments at Motley Fool CAPS today. Let the collective wisdom of our 160,000-member-strong investment community help you make better investing decisions.

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Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. You can follow her on Twitter. Western Union is a Motley Fool Inside Value recommendation and a Motley Fool Stock Advisor pick. Alliance Resource Partners LP is a Motley Fool Income Investor pick. Motley Fool Options has recommended a write covered calls position on Western Union. The Motley Fool has a disclosure policy.