Like most manufacturing companies, one of the best ways to judge solar manufacturers is by looking at the return on assets. Manufacturers build massive solar plants for millions of dollars, and investors expect a return on those assets to flow to the bottom line. Below are seven of the largest solar manufacturers and their return on assets in 2010.
Company | 2010 Net Income | 2010 Average Assets | Return on Assets |
|---|---|---|---|
| First Solar | $664.2 Million | $3.87 Billion | 17.2% |
| SunPower | $178.7 Million | $3.04 Billion | 5.9% |
| Trina Solar | $311.5 Million | $1.84 Billion | 16.9% |
| LDK Solar | $290.8 Million | $4.96 Billion | 5.9% |
| JA Solar | $266.0 Million | $1.42 Billion | 18.8% |
| Suntech Power | $262.3 Million | $4.60 Billion | 5.7% |
| Yingli Green Energy | $215.0 Million | $3.03 Billion | 7.1% |
Sources: Yahoo! Finance and company releases.
You can see that among Chinese manufacturers, Trina Solar and JA Solar are far ahead of the pack. But LDK Solar's numbers would have been similar if the company didn't spend most of 2010 in expansion mode. LDK's net income improved considerably toward the end of 2010, so the first half numbers weighed it down slightly. Of course, LDK's announcement this week that it shipped fewer panels than expected in the first quarter could bring its return on assets back down.
With the lowest margin in the group and no discernable competitive advantage, Suntech looks to be the worst of the bunch.
SunPower and Yingli are both solar powers with mediocre return on assets at best. SunPower has to hang its hat on being the highest efficiency manufacturer and costs falling faster than competitors' in the future.
Last but not least, First Solar's excellent return on assets is one of the reasons it sports the highest P/E ratio in the industry at 18 times trailing earnings.
Keep an eye on how efficient manufacturers are with your money. Following companies who get outsized returns from their assets can lead to outsized returns in your portfolio.
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