For Immediate Release
Chicago, IL – June 22, 2018 - Stocks in this week’s article Illumina, Inc. (ILMN - Free Report) , Lululemon Athletica Inc. (LULU - Free Report) , Surmodics, Inc. (SRDX - Free Report) and ConocoPhillips (COP - Free Report) .
4 of the Best Efficient Stocks to Buy for Superb Returns
Companies with favorable efficiency levels are likely to be on investors’ radar irrespective of market conditions. After all, efficiency is a potential indicator of a company’s financial health.
Moreover, a company with a favorable efficiency level is expected to provide impressive returns as it is believed to be positively correlated with its price performance.
How to Measure Efficiency?
We have considered four popular ratios in order to find efficient companies that have the potential to provide impressive returns.
Inventory level is one of the key indicators of a company’s business health. While a high inventory level may indicate that the company is going through a rough patch in terms of sales, a dwindling level may indicate that it will run out of stock in a favorable sales condition. This is where inventory turnover comes into play. It is the ratio of 12-month cost of goods sold (COGS) to a 4-quarter average inventory. Thus, a high value of the ratio indicates a low level of inventory relative to COGS, while a low ratio signals that the company has excess inventory.
This ratio is used to measure a company’s capability to extend its credit and collect debts on the basis of that credit. Receivables turnover ratio or the “accounts receivable turnover ratio” or the “debtor’s turnover ratio” is calculated by dividing 12-month sales by four-quarter average receivables. While a high ratio indicates that the company efficiently collects its accounts receivables or has quality customers, a low ratio signals that the company has an inefficient collection procedure or has low-quality customers or an inefficient credit policy.
This is a widely used measure of a company’s efficiency. Asset utilization indicates a company’s potential to utilize its assets. It is a ratio of total sales over the past 12 months to the last 4-quarter average of total assets. So, the higher the ratio, the greater is the chance of the company utilizing its assets efficiently. On the contrary, a low value of the ratio signals that it is failing to use its assets effectively.
Another popular efficiency ratio is operating margin. Operating profit margin, which is simply operating income over the past 12 months divided by sales over the same period, indicates how well a company is controlling its operating expenses. If a company has a high operating profit margin in relation to its competitors, it is doing a better job at controlling operating expenses.
All these ratios can be considered as effective measures if one compares different companies within a particular sector or industry. This is the reason why we have considered only those companies that have higher ratios than their respective industry averages.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/308741/4-of-the-best-efficient-stocks-to-buy-for-superb-returns
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