These days, hard work is not enough -- efficiency matters just as much. Why not apply that wisdom to your investments, too?
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 reveals how efficiently the company employs its owners' capital. In a nutshell, it essentially gauges your bang per buck as an investor. Take Colgate-Palmolive (NYSE: CL), which boasts an extraordinary ROE of 113. A higher ratio means a more efficient company, and a more effective executive team when it comes to managing the business. These are the sort of companies you should consider for your portfolio.
To uncover some of the most efficient companies out there, I turned to the Motley Fool's CAPS screening tool. I looked for companies with:
ratings of five stars, the highest ratings from our CAPS community.ROEs of 25 or greater.Market caps of $500 million or greater.Here's what popped up from my screen today:
Company
Market Cap (in billions)
Return on Equity (TTM)
Agrium (NYSE: AGU)
$6.37
26.3%
Alliance Holdings
$1.27
56%
Bristol-Myers Squibb (NYSE: BMY)
$39.84
41.3%
Colgate-Palmolive
$36.87
113%
Diageo (NYSE: DEO)
$42.05
59.2%
Diamond Offshore Drilling (NYSE:DO)
$12.31 Continued... |