WHAT ARE WE LOOKING FOR?
Let's look at Canada's small- and mid-cap companies for best return on equity. We'll use Thomson Reuters ONE's Stock Reports Plus, a portfolio management tool for institutional investors. What this tool will do is allow us to compare current ROE values with average ROE of the past five years.
WHAT IS RETURN ON EQUITY?
A company's earnings per share sometimes don't tell the full story of a company's ability to produce profits. Smart shareholders will want to study a company's return on equity. It calculates how much profit a company generates from what shareholders have invested in the company. The calculation is made taking net income and dividing it by shareholders' equity.
MORE ABOUT THE SCREEN
This is the same screen we did yesterday, except we've moved the market cap down to $50-million to $1-billion. We're looking for the best ROEs over the past 12 months.
There are two approaches to follow from here: One is to look for high ROEs and then do more research to see if the company can maintain the high returns or improve upon them further. Another approach is to look for companies that have consistently high ROEs over the past five years.