Comparing a company to its competitors can be tough, but with just three great metrics, you can get an idea about management's faith in the company's future and gauge how well they are managing operations and finances.
Those three metrics are operating margin, debt-to-equity ratio, and inside ownership. We'll start today with the food manufacturing industry. After the table, we'll talk about what these numbers tell us:
|
Company |
Operating Margin |
Debt-to-Equity Ratio |
Inside Ownership |
|---|---|---|---|
|
B&G Foods |
21.76% | 2.23 | 2.38% |
|
Kraft Foods |
13.29% | 0.92 | 0.08% |
|
General Mills |
15.78% | 1.00 | 0.11% |
|
ConAgra Foods |
9.54% | 1.76 | 0.33% |
|
Diamond Foods |
11.36% | 1.49 | 3.28% |
Yahoo! Finance.
Operating margins
A company's operating margin tells you how much revenue it retains after all the operating expenses are taken out, which speaks to its efficiency.
B&G Foods (the manufacturer of brands like Cream of Wheat and Mrs. Dash) has the highest margin of the food manufacturers in the table above. Even better, a quick review of its latest 10-K shows that it's been slowly growing this number over the past few years. More cash in the company's pocket can lead to better returns for investors, especially if the company pays out a dividend, which B&G Foods does, with a current yield of 4.7%.
On the flip side, ConAgra has the lowest margins here. This gives it less wiggle room than competitors, which isn't great with the cost of foods increasing. The company has been pretty consistent here, though, so investors shouldn't be too worried.
Debt-to-equity ratios
This metric measures how a company's shareholder equity compares to its debt obligations. A company with a high ratio has financed a larger part of its growth with debt. This can potentially increase earnings, but also results in a larger, more worrisome debt burden to fulfill if earnings don't materialize.
Some industries, like food manufacturing, are more capital-intensive than others, and that's why it's really important to always check this one against competitors. Kraft is doing the best of the companies above, while B&G Foods is going to be the most volatile with the highest ratio here.
Inside ownership
How much of a company's stock is owned by its executives may not have a totally transparent impact on performance, but it's still an important metric to consider when researching companies. If management is in the same car as you, it's a safe assumption that they'll be less likely to let it crash and burn.
The 3.28% at Diamond Foods and 2.38% at B&G Foods are great. The companies are smaller than competitors Kraft and General Mills, making it easier to own a higher percentage of available common stock, but it still shows aligned interests from the management teams.
Building a strong portfolio takes time, but the more research you do, the more confident you'll feel with your decisions. For three more great stocks to consider, click here to read a special free report put together by some of our top analysts.
