Getting the Most Bang for the Equity Buck
By David Braverman
Return on equity measures how much in earnings a company generates in four quarters compared to its shareholders' equity, as a percentage. For example, if a company made $1 million in the past year and has shareholders' equity of $10 million, then the ROE is 10%.
In effect, return on equity is a measurement of capital efficiency. It tells investors whether funds invested in the company through retained earnings and issuance of new shares are getting a favorable return.
The following nine stocks are in the S&P 500 and have a return on equity of at least 30% for each of the last three years.
Abbott Labs (ABT )
Colgate Palmolive (CL )
Dell Computer (DELL )
Equifax (EFX )
Kellogg (K )
Lexmark (LXK )
Ralston Purina (RAL )
Tupperware (TUP )
USA Education (SLM )
David Braverman is a senior investment officer with Standard & Poor's