For Immediate Release
Chicago, IL – February 7, 2018 - Stocks in this week’s article Lululemon Athletica (LULU - Free Report) , Exelixis (EXEL - Free Report) , IDEXX Laboratories (IDXX - Free Report) , Teradyne (TER - Free Report) and Pioneer Natural Resources (PXD - Free Report) .
5 of the Best Efficient Stocks for Your Portfolio
Companies with favorable efficiency levels are likely to be on investors’ radar irrespective of market conditions as price performance is believed to be positively correlated with efficiency. Efficiency, a company’s ability to transform inputs into outputs, is a potential indicator of a company’s financial health.
Key Ratios to Identify Efficiency
Sometimes it becomes difficult to measure the efficiency level of a company. This is the reason why one must consider popular efficiency ratios while selecting stocks. These efficiency ratios are:
Inventory Turnover: The ratio of 12-month cost of goods sold (COGS) to a four-quarter average inventory is considered one of the most popular efficiency ratios. It indicates a company’s ability to maintain a suitable inventory position. While a high value indicates that the company has a relatively low level of inventory compared to COGS, a low value indicates that the company is facing declining sales, which resulted in excess inventory.
Receivables Turnover: This is the ratio of 12-month sales to four-quarter average receivables. It shows a company’s potential to extend its credit and collect debt in terms of that credit. A high receivables turnover ratio or the “accounts receivable turnover ratio” or “debtor’s turnover ratio” is desirable as it shows that the company is capable of collecting its accounts receivables or that it has quality customers.
Asset Utilization: This ratio indicates a company’s capability to convert assets into output and is thus a widely known measure of efficiency level. It is calculated by dividing total sales over the past 12 months by the last four-quarter average of total assets. Like the above ratios, high asset utilization may indicate that a company is efficient.
Operating Margin: This efficiency measure is the ratio of operating income over the past 12 months to sales over the same period. It measures a company’s ability to control operating expenses. Hence, a high value of the ratio may indicate that the company manages its operating expenses more efficiently than its peers.
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