What are we looking for?
We’re shutting out the noise of economic reports, foreign exchange markets and financial forecasts to focus on a respected, traditional measure of a company’s worth: return on equity. ROE reveals how much money a company generates from what shareholders have invested in it. The calculation is made by dividing profit by shareholders’ equity. More efficient profit machines generate consistently higher ROEs.
The Screen
We took companies listed on the Toronto Stock Exchange with a market value of at least $1-billion and let Bloomberg scour the ranks for any player with a return on equity of more than 10 per cent. The Bloomberg calculation defines profit as net income minus preferred dividends. It defines shareholders’ equity as share capital plus additional paid-in capital plus retained earnings. And it combines figures for the most recently completed quarter plus estimates for the current quarter.
What did we find out?
Only 32 companies made the cut. We have listed the first 20 here. Also included are the average five-year ROEs, data that provide a reasonable track record for each company.
The list is dominated by financial stocks, with the country’s seven largest banks landing in the top 20. Industrials had the second-largest presence and the technology sector secured three spots on the list: Research In Motion Ltd., CGI Group Inc. and CAE Inc. RIM, which sits on top, has consistently placed on the list in our checks every six to 18 months. It also boasts one of the best five-year records, second only to the TMX Group. In most cases, current ROEs were close to five-year averages, which could signal that the efficiency of their profits is relatively flat. In addition to checking multiyear results for ROE, investors might also want to do more research to see whether a company can maintain its high returns.
