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The Times 100: The Best Performing Companies in California

How This Honor Roll Was Made

May 07, 1996|DANIEL GAINES | TIMES STAFF WRITER

Five key measures--all traditional parts of our annual "Times 100" publication--were used to make this honor roll of California companies.

The list was created by measuring performance in each area, comparing all 997 eligible publicly traded companies and then blending the five results with equal weighting.

In the five columns to the right of each company name, we show where it ranks on the five major "100" lists elsewhere in this section. Every company on The Times 100 must appear on at least one of those lists. Also, no company listed here could have had a negative return on equity over the last two years.

A blank space means the company didn't finish in the top 100 in that particular category. But no matter where the company ranked--101st or 997th--that figure in each category was used to determine its overall ranking in The Times 100.

For the Record
Los Angeles Times Wednesday May 8, 1996 Home Edition Business Part D Page 2 Financial Desk 3 inches; 72 words Type of Material: Correction
Times 100--The Times 100 special section Tuesday on California's best-performing companies contained several errors:
* Figures in the charts on Page 8 are incorrectly described as measuring income from continuing operation. In fact, they measure net income, which includes one-time charges. Several of the companies in the net loss chart had positive income from continuing operations.
These corrections have been made in the Times 100 section of the The Times' World Wide Web site at http://www.latimes.com

For example, at first glance it may seem that No. 3 Oracle Corp., with three high rankings among the "100" lists, did not do as well as No. 4 C-Cube Microsystems, with four such rankings. But remember that our analysis takes into account performance in all five categories.

Thus, Oracle's 44% sales growth rate in 1995 put it almost in the top 100 in that category--the 100th company on the Growth 100 had a 50% growth rate--and Oracle's 60% stock price gain was also fairly high. So Oracle's overall ranking is relatively high in every category.

C-Cube, although high-ranking in growth, stock-price gain and return on equity, had total sales of $124 million last year--placing it closer to the middle of the pack in total sales.

With all five categories considered equally, Oracle nudges ahead of C-Cube.

A more dramatic example of how this works is Jacobs Engineering Group in Pasadena. Jacobs, like a few other "Times 100" companies, appears on only one of the five "100" lists: 64th in sales.

But compared with all ranked companies, Jacobs is very solid in the other four categories as well. Jacobs had a 30% sales growth rate, a 40% stock price gain, a 12.5% return on equity and a market capitalization of about $700 million. Taken together, then, these measures put Jacobs on The Times 100.

As with the blind men describing the elephant, each of these five factors alone reveals something important but ultimately tells only part of the company story.

But by combining the five categories to determine The Times 100, the list is comprehensive, useful and fair. Here's a review of the five measures used:

* Market Capitalization: This is stock price times number of shares outstanding--the value the market places on a company. Unlike "book value," which is the theoretical liquidation valuvalue of a company's assets, market cap reflects what investors think it a company is intrinsically worth. Although a solid measure, market cap can vary tremendously depending on how glum or optimistic Wall Street feels.

* Total Sales: As with market capitalization, companies with higher sales will rank higher on our list, all other things being equal. This is a basic measure of corporate success because it gauges customer dollars flowing through company coffers. However, this measure makes no distinction between a large company that is still growing and one that is shrinking.

* Sales Growth: Percentage sales growth reflects the change in total revenue in 1995. Normally, high growth is a standard measure of success, but there are caveats: This figure doesn't distinguish between companies growing internally and those growing purely by acquisition. Sales growth can come at a price, if a company goes into debt to buy a rival or complementary business.

* Stock Price Change: We measured the percentage change in each company's stock price during the year, and ranked the companies in that order. Share price gain is a measure of Wall Street's enthusiasm, of course. But in the short run, investors can be far too optimistic--or pessimistic--in judging a "fair" stock price for a company. Some companies whose shares soared may merely be benefiting from a sector fad, or the price may have been unreasonably depressed a year ago.

* Return on Equity: Return on equity is the bottom line--the amount of profit earned on the capital shareholders have invested in a company. We rank companies by the average annual percentage return on equity over the past two years. Using the two-year average figure prevents a single year of extraordinary gains from distorting the results.

Still, return on equity can be misleading. Some companies are highly leveraged and operate on borrowed capital, with very little shareholder equity. Thus, a small amount of earnings can produce a high return on equity. Also, some companies by nature can operate with much less shareshareholder equity than others.

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Absolute Profits

Companies ranked by profits from continuing operations.

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