explaining why his fund Fundsmith Equity is so successful, I decided to follow his advice and take a look at some FTSE 100 stocks to see how they measured up.
In the video his first tip referred to Return On Capital Employed (ROCE). I had heard of this calculation before but had never looked into and applied it to prospective stocks. The first step was to learn what ROCE is and how to calculate it based on the financial reports from a company. I completed this step and then looked at 22 different FTSE 100 companies and calculated their ROCE percentage.
The results are as follows :
| Company | Net Profit Before Tax 2014 | Net assets 2014 | ROCE % |
| Admiral | 350.7 | 580.9 | 60 |
| Astrazenica | 1246 | 19646 | 6 |
| Aviva | 2663 | 12276 | 22 |
| BAE | 882 | 1877 | 47 |
| Barclays | 2256 | 65958 | 3 |
| BATS | 4848 | 26167 | 19 |
| BP | 4950 | 112642 | 4 |
| Glaxo | 2968 | 4936 | 60 |
| HSBC | 18680 | 199978 | 9 |
| Imperial Tobacco | 1525 | 5696 | 27 |
| Legal & Gen | 1413 | 6303 | 22 |
| Lloyds | 1762 | 49903 | 4 |
| Nat Grid | 2628 | 11974 | 22 |
| RBS | 2643 | 60192 | 4 |
| RDSB | 28314 | 172786 | 16 |
| Severn Trent | 318.9 | 823.3 | 39 |
| SSE | 592.5 | 5119.5 | 12 |
| Standard Life | 422 | 4950 | 9 |
| Taylor Wimpey | 468.8 | 2535.3 | 18 |
| Unilever | 7646 | 14263 | 54 |
| United Utilities | 543.3 | 2215.9 | 25 |
| Vodafone | -5270 | 71781 | -7 |
Having reviewed the list it becomes instantly apparent why he uses this calculation as an initial filter. Applying this alone would save you from investing in the likes of Barclays, BP, RBS and HSBC which have all yielded terrible results for investors. However, it would encourage taking a closer look at Unilever, Severn Trent, Glaxo and BAE which are proven to be fundamentally sound.
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