By Michael Kaye, CFA To spur their own growth, many companies increase their financial leverage -- that is, borrow money to finance acquisitions or new facilities. But not every business chooses that approach. Some outfits can generate their own growth through efficient deployment of capital and strong sales.
The benefits are obvious. When a company can finance its own growth with funds coming in the door, it doesn't have to take on as much debt. And lower debt levels mean that interest costs take less of a bite out of a company's bottom line.
SALES STREAKS. For this week's stock screen, we identified names with a strong capacity to self-finance future sales growth by looking in our database for companies that have a return on equity above 25% for their most recent reporting period -- and a long-term debt-to-equity ratio of below 2%. Sales for each company had to have increased in each of the last five years.
And finally, to make sure that these were solid, established names, we chose only companies with a stock price above $5 and a market capitalization above $100 million. When we finished our number crunching, these five names remained:
Paying Their Own Way
Engineered Support Systems
J2 Global Communications
Nam Tai Electronics
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