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 measures your bang per buck as an investor.

Take Western Union (NYSE:WU), which rocks a whopping ROE of 263% over the past four quarters. Or look at Alliance Resource Partners (NASDAQ:ARLP), which boasts an ROE of 55.1%.

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

To uncover some of the most efficient companies around, I did 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

Return on Equity (TTM)

Abbott Laboratories (NYSE:ABT)

$85.9 billion


Alliance Resource Partners

$1.6 billion



$528.7 million


Flowserve (NYSE:FLS)

$5.6 billion


Huntsman (NYSE:HUN)

$2.9 billion


Johnson & Johnson (NYSE:JNJ)

$176.5 billion


Western Union

$13.4 billion


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 145,000-member-strong investment community help you make better investing decisions.

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Fool contributor Jennifer Schonberger owns shares of Johnson & Johnson, but does not own shares of any of the other companies mentioned in this article. Western Union is a Motley Fool Inside Value recommendation. Ebix is a Rule Breakers selection. Western Union is a Stock Advisor pick. Alliance Resource Partners and Johnson & Johnson are Income Investor recommendations. Motley Fool Options has recommended writing puts on Western Union. The Fool owns shares of Ebix and Flowserve, and has a disclosure policy.