Among various financial indicators that provide a snapshot of a company's health, return on equity (RoE) is considered an important metric.
The ratio, measured by dividing the company's shareholder equity with its annual profit, tells an investor how well it is using its capital.
Companies that posted RoE of more than 15 percent are generally considered to be in sound shape. Those that have RoE of more than 30 percent could be top-tier. We scoured through our database to find the latter set of companies -- those that have scored 30 percent plus RoE in each of the last three years. We found that 23 companies make the cut.
We looked for only those companies whose market cap is over Rs 1,500 crore.
The list includes mega large cap stocks like Tata Consultancy Services, Hindustan Unilever, Eicher Motors, Hero Motocorp, Castrol India and Page Industries etc.
It must be noted that RoE is not the only metric that investors should look at. While it helps investors get a snapshot of how well the management runs the company's operations, RoE can also be inflated if a company takes on leverage and allocates capital efficiently.
However, trends show that high RoE often reflects in strong share price performance over the medium term.
In the last three year, 12 stocks from the list have clocked returns of over 100 percent. Avantis Feeds, Tata Metaliks and TVS Srichakar top the list with 657 percent, 488 percent and 436 percent respectively.
19 stocks of the 23 outperformed the benchmark index Sensex, which gave 25 percent return over the same time period.
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