HRNet and Singapore O&G are the most profitable companies in my portfolio based on the gross profitability ratio.
After reading Michael Mauboussin’s excellent Base Rate Book, I applied the gross profitability screen to my existing portfolio. Gross profitability or Gross Profits divided by Total Assets measures a company’s ability to make money and is used as a measure of quality. Professor Robert Novy-Marx found that the share price of the most profitable non-financial companies tended to outperform the least profitable companies.
According to Novy-Marx, a 33% gross profitability ratio is generally regarded as attractive. Lastly, companies with high gross profitability tend to maintain their profit margins in the future so this ratio seems to be a good predictor of future returns.
HRNet had the highest gross profitability while China Aviation Oil had the lowest gross profitability in 2018.
In the last five years, the gross profitability of HRNet, SOG
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