In today's economy if you read about a company described as having strong profits and a significant cash reserves, you may wonder if you are wearing rose colored glasses. It is hard not to be a little suspect, and it is probably a good thing that investors have learned to dig deeper. Today we have a list of large cap companies that are doing well in terms of profit generation and maintaining a healthy reserve. These companies are well positioned for realizing expansion strategies. If you are interested in companies of this nature, the list below is a great place to start your research.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
We first looked for large cap dividend stocks. Next, we then screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then looked for businesses with strong profit margins (1-year operating margin>15%)(ROA > 10%). We did not screen out any sectors.
Do you think these large-cap stocks should be priced higher? Use our screened list as a starting point for your own analysis.
1) Freeport-McMoRan Copper & Gold Inc. (FCX)
Freeport-McMoRan Copper & Gold Inc. has a Dividend Yield of 3.73%, a Payout Ratio of 33.70%, a Current Ratio of 3.46, a Quick Ratio of 2.09, a Operating Profit Margin of 34.30%, and a Return on Assets of 12.61%. The short interest was 2.68% as of 08/06/2012. Freeport-McMoRan Copper & Gold Inc. engages in the exploration, mining, and production of mineral resources. The company primarily explores for copper, gold, molybdenum, cobalt hydroxide, silver, and other metals, such as rhenium and magnetite. It holds interests in various mines located in the Grasberg minerals district in Indonesia; Morenci minerals district in North America; South America; and Tenke Fungurume minerals district in the Democratic Republic of Congo.
2) Chunghwa Telecom Co. Ltd. (CHT)
|Industry:||Telecom Services - Domestic|
Chunghwa Telecom Co. Ltd. has a Dividend Yield of 6.14%, a Payout Ratio of 88.89%, a Current Ratio of 2.22, a Quick Ratio of 2.11, a Operating Profit Margin of 27.42%, and a Return on Assets of 10.81%. The short interest was 0.53% as of 08/06/2012. Chunghwa Telecom Co., Ltd. provides integrated telecommunication services primarily in Taiwan. It offers domestic fixed communications services, including local and domestic long distance telephone, broadband access, local and domestic long distance leased line, multimedia-on-demand (MOD), Wi-Fi, and domestic data services; mobile communications services comprising mobile, paging, information and communication technology, corporate solution, and bill handling services; Internet, data communication, Internet data center, and other Internet services; international fixed communications services that comprise international long distance telephone, international leased line, international data, satellite, and other services, including the provision of interconnection of its fixed line network and mobile network with other operators; and ICT services, such as cloud computing. The company also sells mobile handsets and data cards; and leases real estate properties.
3) Analog Devices Inc. (ADI)
|Industry:||Semiconductor - Integrated Circuits|
Analog Devices Inc. has a Dividend Yield of 3.02%, a Payout Ratio of 44.39%, a Current Ratio of 8.10, a Quick Ratio of 7.55, a Operating Profit Margin of 32.55%, and a Return on Assets of 13.35%. The short interest was 2.17% as of 08/06/2012. Analog Devices, Inc. engages in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits (ICS) used in industrial, automotive, consumer, and communication applications. The company's signal processing products involve in converting, conditioning, and processing real-world phenomena, such as temperature, pressure, sound, light, speed, and motion into electrical signals. Its product range includes data converters, amplifiers and linear products, radio frequency ICs, power management products, sensors based on micro-electro mechanical systems technology and other sensors, and processing products.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.