What are we looking for?
Let's look at Canadian companies with the best return on equity again today. Yesterday, we found the best 20 Canadian companies for ROE in the past 12 months. Market caps had to be greater than $1-billion.
Today, we'll look for Canadian companies with at least a 20-per-cent current ROE and a 20-per-cent five-year average ROE. We'll broaden our minimum market cap to $50-million to capture small-caps stocks today as well. We'll use the Thomson ONE Stock Reports Plus tool, a portfolio management tool for institutional investors.
What is return on equity?
Besides looking at a company's earnings per share, another way to measure a company's ability to generate profits is return on equity. It calculates how much money the company can generate from what shareholders have invested in it. The calculation is made by taking profit and dividing it by shareholders' equity. More efficient profit machines generate consistently higher ROEs.
What did we find out?
Have a look at current ROEs compared with their five-year average. All the companies on this list have much higher recent ROEs compared with their average. It could mean their ROEs have peaked cyclically, or it could mean the efficiency of their profits is improving. If it's the latter, there are some good investment opportunities here. It's up to you to do more research.