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profit 100
India’s most financially stable and capital efficient companies
Rajesh Padmashali
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To draw up the Profit 100 list, we first considered all companies (non-banks) which had financial data for the past six years (2004- 2009) in the Prowess database. In the first round of elimination, we knocked out companies with sales and market capitalisation of less than Rs 100 crore as on March 31, 2009. Then we dropped companies with a debt-equity ratio greater than one for their last reported financial year. From this selection, we weeded out companies that had incurred losses in any of the five years.
In other words, for a company to qualify it should have recorded a net profit after exceptional items in each one of the five years under observation. And then we filtered companies that had recorded positive cash fl ow from operations in each of the past five years. Since our key considerations for the list were stability and growth we rated companies on two vital measures. First, capital efficiency which is best represented by return on capital employed (ROCE).
ROCE, in our case, measures the profit you make before paying interest and taxes as a proportion of the average capital employed during the year. Capital employed includes total equity and long-term debt invested in a company. We brought in a hurdle rate of 12 per cent both for growth in net profit and ROCE for the past five years. And then, we sorted companies that had recorded a minimum 10 per cent annual growth in net sales over the past five years. It was sheer coincidence that we ended up with a little above 100 companies. To list the companies, we ranked them first on each of these two parameters. The cumulative score based on equal weights on these two counts made up the final ranking.