To identify the top performing manufacturers, the IW formula factored in revenue growth and profit margin over the past three years, with 2004 results weighted most heavily. We also considered three-year performance in four other financial ratios:
- Inventory turns (cost of goods sold/average inventory): Indicates how frequently a manufacturer's inventory is sold over the course of a year. This measure varies dramatically by industry; operations with higher inventory turns will require less capital to finance their business.
- Asset turnover (revenues/total assets): This ratio measures how efficiently assets produce sales. Comparing two companies in the same industry, the firm with higher asset turns is using its assets more productively.
- Return on assets (net income/total assets): Another measure of asset utilization, ROA brings profitability into the analysis.
- Return on equity (net income/shareholders' equity): ROE shows how successful management is at maximizing the return on shareholder investment in a company.