In the sixth annual ranking of the Chief Executive/Applied Finance Group wealth creators, more and more leaders are showing that they have both the discipline and staying power to sustain real value creation.

Our ranking is based on the performance of companies in the S&P 500 Index (and their CEOs) for the three years ending on June 30, 2013. It considers reported financial results during that period and estimates for the next 12 months. Only companies with CEOs who were in their roles for the entire July 2010 through June 2013 period were ranked. Not ranked are the 15 REITs in the 2013 S&P 500, as well as News Corp. and Sprint, the data for which was unavailable due to a pending corporate spin-off and an acquisition, respectively. The four components of the ranking, explained below, were developed and calculated by the Applied Finance Group (AFG), an independent equity-research advisory firm, using their proprietary metrics and data. A proprietary weighted combination of each company’s component rankings, taking into account the industry the company is in, is used to produce an overall score: 100 is awarded to the best wealth creator; 1 to the worst. (The list itself shows these overall scores as a sequential ranking.) The component rankings are shown as letter grades with companies in the top 20 percent of each component metric receiving an A grade; the bottom 20 percent receiving an F.

Market (or Enterprise) Value/Invested Capital (MV/IC)

This measure shows the degree to which investors consider the company’s assets valuable, relative to their cost. Market value is what a buyer would have to pay to buy the company outright, that is, to purchase all of the stock and pay off all of the loans, leases and other obligations. Note that market value depends on the stock price. Invested capital is the inflation-adjusted total of all of the investments in the business. It does not depend on the stock price. So by its nature, MV/IC reflects the market’s take on the value of the investments made in the business.

The Average of the Past Three Years’ Economic Margins

Economic Margin (EM) measures the return a company earns above or below its risk-adjusted cost of capital. Riskier businesses are accorded relatively higher capital costs. EM is defined as (Operating Cash Flow—Risk-Adjusted Capital Charge)/Productive Capital. Productive Capital consists of the cash-flow generating assets, excluding goodwill and intangibles. Companies with positive EM (greater than 0 percent) are creating wealth; those with negative EM are destroying it. To learn more about the economic-margin framework visit EconomicMargin.com.

EM Change

This is a 12-month forecasted EM, based on the ratio of the most recent EM to the 3-year average.

Management Quality

This AFG-proprietary measure rewards a company with positive EM for growing its asset base and penalizes one with negative EM for doing the same thing. In other words, if a company is making money and it adds assets in such a way that it can make even more, that’s good. So is selling off a money-losing division. That said, it’s also valid that adding scale can dramatically increase profitability in a business with high fixed costs.

The top 50 companies in the ranking delivered an average Total Shareholder Return (TSR) of 124.78 percent between January 2010 and June 2013 (the period covered in the reported financials). The bottom 50 companies’ TSR averaged 29.3 percent, while the S&P 500’s actual was 44 percent (without its 15 REITs). The top 50’s median TSR was 112.10 percent; the bottom 50’s was 28.2 percent.

As the table at above shows, the top 50 companies in the wealth-creation ranking far outperformed the bottom 50 companies and the S&P 500 between July 2010 and June 2013. Note: Total Shareholder Return = share-price return percent plus reinvested dividends, expressed as a percent. For more on Economic Margin and how companies scored, see www.economicmargin.com/moreinfo.htm.


Chris Austin (Director), The Applied Finance Group TM, Ltd (AFG).
Michael Burdi (Senior Analyst), The Applied Finance Group TM, Ltd (AFG)

AFG is a Chicago-based independent equity research advisory firm specializing in performance and valuation measurement using Economic Margin. Disclaimer: AFG, its owners, employees and/or customers may have positions in the securities listed in this article. The information provided is based on material AFG believes to be accurate and reliable, however, its accuracy and completeness, and conclusions derived there from, are not guaranteed.

For more information regarding the Wealth Creation Index rankings email [email protected].


2013 Wealth Creators Index Links:

CEO Value Maximizers
How Wealth-Creation Metrics Can Help Every Business Become More Valuable
Complete List of 2013 Wealth Creators Index
Ranking CEO Wealth Creation
How to Move Up in the Rankings


MORE LIKE THIS

  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events

    Roundtable

    Strategic Planning Workshop

    1:00 - 5:00 pm

    Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process

    Executives expressed frustration with their current strategic planning process. Issues include:

    1. Lack of systematic approach (70%)
    2. Laundry lists without prioritization (68%)
    3. Decisions based on personalities rather than facts and information (65%)

     

    Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns.  They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning.  Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process.  This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented.  If you are ready for a Strategic Planning tune-up, select this workshop in your registration form.  The additional fee of $695 will be added to your total.

    To sign up, select this option in your registration form. Additional fee of $695 will be added to your total.

    New York, NY: ​​​Chief Executive's Corporate Citizenship Awards 2017

    Women in Leadership Seminar and Peer Discussion

    2:00 - 5:00 pm

    Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations. 

    Limited space available.

    To sign up, select this option in your registration form. Additional fee of $495 will be added to your total.

    Golf Outing

    10:30 - 5:00 pm
    General’s Retreat at Hermitage Golf Course
    Sponsored by UBS

    General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.

    The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.

    To sign up, select this option in your registration form. Additional fee of $295 will be added to your total.