Equity Clock

Stocks with the Best Return on Equity (ROE)

An often reasonable indicator of management effectiveness is the Return on Equity (ROE) a company is able to generate.   It is the return garnered from the owners (shareholders) stake in the company, calculated by dividing the net income by shareholder’s equity.   This indicator of company effectiveness of generating a return on shareholder’s investment has become a well known and well used fundamental indicator in determining the value of a particular stock.

It is important to note the effects on ROE as it pertains to the denominator, which is the equivalent of the company’s assets minus its liabilities, therefore this can allow the formula to become very subjective.   If we play around with the numbers and inflate the asset side of the equation, keeping liabilities fixed, you would end up with a larger denominator as noted by the shareholder’s equity.   Companies with large assets on their books might include capital-intensive companies, such as utility companies.   As a result of a larger denominator in this case, the ratio may be deflated by earnings that are not able to meet the par of a large shareholder’s stake.   Similarly if the company had fewer assets, again keeping the liabilities fixed, you would see a lower shareholder’s equity on the books of the company, and as a result may make the return on equity increasingly more positive as less income is required to act as a comparison basis to the denominator of this ratio.  Now obviously these are just simple explanations that basically assume a fixed net income and liability level, and the only variable is the amount of assets that the company has, but it gives you an idea of the subjectivity surrounding this fundamental information.

What kind of Return on Equity (ROE) ratios can you expect?

The current average ROE for all S&P 500 stocks is 14.84% (TTM).   Compare this to the stocks on the TSE Composite at 3.75% (TTM), which is mainly buoyed by stocks within the financial space.   The range is from –183% for AIG (NYSE:AIG) to 491% for Western Union (NYSE:WU).  There appears to be no pattern of particular sectors topping the list in either direction, other than the obvious companies that have been hit hard due to the economic downturn due to lack of demand for their products.   Companies such as Eastman Kodak, United States Steel, Office Depot, and a number of mining companies that specialize in Gold form the list as having the worst Return on Equity.

What companies have the best Return on Equity (ROE)?

Below lists the top 25 companies that have the best ROE:

1. WESTERN UNION COMPAN (WU) – Company ROE: 491.49 – Industry ROE: 0.19 – Sector ROE: 2.09
2. BOEING CO (BA) – Company ROE: 320.14 – Industry ROE: 74.16 – Sector ROE: 1.39
3. LORILLARD, INC (LO) – Company ROE: 264.07 – Industry ROE: 8.66 – Sector ROE: 4.6
4. YUM BRANDS INC (YUM) – Company ROE: 233.59 – Industry ROE: 6.57 – Sector ROE: -0.97
5. COCA COLA ENTRPR INC (CCE) – Company ROE: 176.57 – Industry ROE: 12.58 – Sector ROE: 4.6
6. Windstream Corporation (WIN) – Company ROE: 129.01 – Industry ROE: 8.07 – Sector ROE: 8.53
7. TENET HLTHCRE CP (THC) – Company ROE: 102.17 – Industry ROE: -28.63 – Sector ROE: 3.62
8. COLGATE PALMOLIVE (CL) – Company ROE: 96.44 – Industry ROE: 3.6 – Sector ROE: 4.6
9. PHILIP MORRIS INTL (PM) – Company ROE: 95.63 – Industry ROE: 8.66 – Sector ROE: 4.6
10. ALTRIA GROUP INC (MO) – Company ROE: 92.65 – Industry ROE: 8.66 – Sector ROE: 4.6
11. LOCKHEED MARTIN CP (LMT) – Company ROE: 86.47 – Industry ROE: 74.16 – Sector ROE: 1.39
12. THE HERSHEY COMPANY (HSY) – Company ROE: 83.95 – Industry ROE: 4.16 – Sector ROE: 4.6
13. ADV MICRO DEVICES (AMD) – Company ROE: 79.23 – Industry ROE: -1.12 – Sector ROE: 1.2
14. CAMPBELL SOUP CO (CPB) – Company ROE: 77.75 – Industry ROE: 4.16 – Sector ROE: 4.6
15. CONSTELLATION ENGY (CEG) – Company ROE: 74.81 – Industry ROE: 2.26 – Sector ROE: 2.47
16. INTL BUSINESS MACH (IBM) – Company ROE: 74.37 – Industry ROE: 2.89 – Sector ROE: 1.2
17. KELLOGG CO (K) – Company ROE: 65.22 – Industry ROE: 4.16 – Sector ROE: 4.6
18. AVON PRODUCTS INC (AVP) – Company ROE: 63.73 – Industry ROE: 3.6 – Sector ROE: 4.6
19. FREEPORT MCMORAN B (FCX) – Company ROE: 60.82 – Industry ROE: 7.49 – Sector ROE: 0.82
20. HEINZ H J CO (HNZ) – Company ROE: 56.33 – Industry ROE: 4.16 – Sector ROE: 4.6
21. H R BLOCK INC (HRB) – Company ROE: 54.34 – Industry ROE: 2.55 – Sector ROE: 4.6
22. MASTERCARD INC (MA) – Company ROE: 53.52 – Industry ROE: 2.89 – Sector ROE: 2.09
23. LILLY ELI CO (LLY) – Company ROE: 53.25 – Industry ROE: 12.03 – Sector ROE: 3.62
24. Apollo Group, Inc. (APOL) – Company ROE: 52.92 – Industry ROE: 2.55 – Sector ROE: 4.6
25. Gilead Sciences, Inc. (GILD) – Company ROE: 49.55 – Industry ROE: 2.8 – Sector ROE: 3.62

As always, be sure to perform further research prior to making your investment decisions to form a well rounded analysis of the investment you are seeking.

Stocks mentioned in this post: BA, CCE, LO, WU, YUM