In a world where unmanageable debt has become all too common, finding companies -- especially those that rank among some of the largest -- that have eschewed debt brings some balance to the picture. These companies serve as reminders that it is possible to grow a business without drawing upon equity to fund the process. For our list today, we ran a scan to find profitable large caps that have a tight rein on debt. The companies on our list have the sound infrastructure, experience, and financial oversight that appeals to investors. Review the list of large-cap stocks below to see if you agree.
The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead to substantial trouble.
Return on Equity (ROE) is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns, and helps identify parts of the company that may be underperforming.
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 stocks. We then looked for companies that have maintained a sound capital structure (D/E Ratio<.1). We next screened for businesses that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(ROA [TTM]>10%). We did not screen out any sectors.
Do you think these large cap stocks have a positive future in store? Use our list to help with your own analysis.
1) Paychex, Inc. (NASDAQ:PAYX)
|Industry||Staffing & Outsourcing Services|
|Return on Equity||34.57%|
|Return on Assets||10.32%|
Paychex, Inc., together with its subsidiaries, provides payroll, human resources, and benefits outsourcing solutions for small to medium-sized businesses in the United States and Germany. The company offers payroll processing services that include the calculation, preparation, and delivery of employee payroll checks; production of internal accounting records and management reports; preparation of federal, state, and local payroll tax returns; and collection and remittance of clients' payroll obligations. The company was founded in 1971 and is headquartered in Rochester, New York.
2) Reed Elsevier PLC (RUK)
|Industry||Publishing - Periodicals|
|Return on Equity||44.92%|
|Return on Assets||44.93%|
Reed Elsevier PLC provides professional information solutions worldwide. The company's Elsevier segment offers scientific, technical, and medical information solutions. This segment publishes science and technology research articles and book titles; and abstract and citation database of research literature, as well as offers information and workflow tools that help researchers generate insights in the advancement of scientific discovery. Reed Elsevier PLC was founded in 1894 and is based in London, the United Kingdom.
3) Mastercard Incorporated (NYSE:MA)
|Return on Equity||33.75%|
|Return on Assets||19.92%|
MasterCard Incorporated, a payments and technology company, together with its subsidiaries, provides transaction processing and other payment-related services in the United States and internationally. Its payment solutions include payment programs, product development, payment processing technology, payment security, consulting, and information services and marketing. The company provides transaction processing services comprising transaction switching, which include authorization, clearing, and settlement; connectivity services, such as network access, equipment, and the transmission of authorization and settlement messages; and other payment-related services, including products used to prevent or detect fraudulent transactions, cardholder services, professional consulting and research services, compliance and penalty, account and transaction enhancement services, holograms, and publication services. MasterCard Incorporated was founded in 1966 and is headquartered in Purchase, New York.
4) Coach, Inc. (NYSE:COH)
|Industry||Textile - Apparel Footwear & Accessories|
|Return on Equity||54.86%|
|Return on Assets||34.67%|
Coach, Inc. engages in the design, marketing, and distribution of handbags, accessories, wearables, footwear, jewelry, sunwear, travel bags, watches, and fragrances for women and men in the United States and internationally. The company offers womens handbags, as well as business cases, computer bags, messenger-style bags, and totes for men. Its accessories comprise small leather goods consisting of money pieces, wristlets, and cosmetic cases for women, as well as wallets and card cases for men; novelty accessories comprising time management and electronic accessories, key rings, and charms; and belts. Coach, Inc. was founded in 1941 and is headquartered in New York, New York.
5) Novo Nordisk A/S (NYSE:NVO)
|Industry||Drug Manufacturers - Other|
|Return on Equity||57.30%|
|Return on Assets||31.67%|
Novo Nordisk A/S, a healthcare company, engages in the discovery, development, manufacture, and marketing of pharmaceutical products in Denmark and internationally. The company operates in two segments, Diabetes Care and Biopharmaceuticals. The company was founded in 1925 and is headquartered in Bagsvaerd, Denmark.
6) Ross Stores, Inc. (NASDAQ:ROST)
|Return on Equity||47.03%|
|Return on Assets||21.97%|
Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. Its Ross Dress for Less brand stores sell brand and designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20 to 60 percent off department and specialty store regular prices; and dd's DISCOUNTS brand stores sell apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20 to 70 percent off moderate department and discount store regular prices. Ross Stores, Inc. was founded in 1957 and is headquartered in Pleasanton, California.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 11/05/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.