No single yardstick would be a fair gauge to rank the Northwest’s publicly traded companies. We picked five measures of corporate performance, then combined them into a single ranking using our proprietary formula.
Out of the 118 Northwest companies publicly traded on a major exchange at the end of 2013, we dropped any firms whose share price fell below $2 at any point during the year. That eliminated such names as Cell Therapeutics and Data I/O from consideration.
Also pruned from the list were five companies that went public in 2013. They’ll be eligible next year after they’ve traded for a full year.
Another firm, Blount International, was cut because it didn’t file its annual financial report by early April; the company said there were “material weaknesses” with its controls over financial reporting in 2013.
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In the end, 94 companies qualified for the rankings.
Companies were ranked on their return on invested capital, free cash-flow yield, stock-price appreciation, revenue growth and dividend yield.
• Return on invested capital gauges how well management is allocating capital to produce profits after taxes.
• Free cash-flow yield shows how much cash the business generates after covering operating expenses and capital investment, relative to the enterprise’s current value. Banks and financial firms generally do well on this measure.
• Stock-price appreciation is an indicator of Wall Street’s enthusiasm for a company’s future growth potential. Tech firms tend to dominate in this category, even ones that haven’t made a profit in years.
• Revenue growth and dividend yield are new to this year’s criteria.
If a company’s sales slide over a year and competitors are gaining ground, investors might question whether the firm is headed for trouble. Steady revenue growth is an important sign that there’s a sustainable market for a business.
Companies that pay dividends to shareholders, such as utilities, real estate investment trusts and banks, generally are attractive to investors who rely on their stock portfolios for income. Firms with low dividend yields today may produce handsome returns tomorrow if the company raises its dividends.
Of the five metrics, free cash-flow yield carried the most weight. We gave the least weight to stock-price appreciation and dividend yield. Companies that performed well in every category relative to the others rose to the top of our list.
We gathered the raw data from Bloomberg News, supplemented by company reports filed with the Securities and Exchange Commission. The companies were first ranked separately on each metric; the subscores were then weighted and combined into an overall score.
For revenue growth, small companies with robust growth got the most points if they outperformed other small companies. In the same way, large firms that outperformed other large firms ranked well.
To minimize distortions due to companies’ differing fiscal years, we used trailing 12-month data for all rankings except stock price, which was based on calendar year 2013. Companies that had negative free cash flow, whose stock lagged the Russell 3000 or who didn’t pay dividends got zero points in those categories.
Sanjay Bhatt: 206-464-3103 or firstname.lastname@example.org. On Twitter @sbhatt