Big investors like Warren Buffett have the clout, time, and resources to evaluate a potential investment's management face to face. You may not have quite such a mighty address book, but that shouldn't stop you from assessing the people in the executive suites.

When sizing up management's mettle, I always start with two simple measures: ownership and returns on invested capital. I want to know whether management has skin in the game, aligning its interests with mine. And I want to learn how well executives have allocated shareholders' hard-earned capital. If management owns a significant stake in the company, and can generate value-creating returns on invested capital, I call that a win-win!

Recently, Lumber Liquidators (NYSE: LL) and its management team caught my eye. The table below will tell you why:


Insider Ownership


Lumber Liquidators



Home Depot (NYSE: HD)



Lowe's (NYSE: LOW)



Source: Capital IQ, a division of Standard & Poor's, and author calculations.

Insiders own 15% of the shares outstanding, and returns on invested capital have consistently exceeded 15%. Since the cost of capital for most companies is between 8% and 12%, depending on their capital structure, Lumber Liquidators is creating value for its shareholders.

Studies also show that competition erodes returns over time. Yet Lumber Liquidators has generated those impressive returns while vying with Home Depot and Lowe's. That impressive achievement suggests that management knows what it's doing.

Good execs? Check!
From the data above, it certainly looks like Lumber Liquidators' management has been creating value for its shareholders. Given its top-notch leadership, I'd suggest you give Lumber Liquidators a spot on your watch list.

Million Dollar Portfolio associate advisor David Meier does not own shares of any of the companies mentioned. Home Depot and Lowe's are Motley Fool Inside Value selections. Lumber Liquidators is a Rule Breakers recommendation. Motley Fool Options has recommended writing puts on Lowe's. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.