Danaher Beats GE: Analyst's Toolkit

BOSTON (TheStreet) -- The growth in technology companies in the past decade has made it easy to forget classic measures of company analysis.

Since tech stocks tend to use different capital structures and have different assets driving the business, gauges like fixed-asset turnover has little use. However, when analyzing traditional companies such as General Electric(GE Quote), United Technologies(UTX Quote) and Danaher(DHR Quote), fixed-asset turnover can help predict which companies may succeed.

Fixed-asset turnover is a simple gauge to calculate: revenue divided by average fixed assets, with average fixed assets being the average of the current and previous periods. The resulting number shows how efficiently revenue is generated based on fixed-capital investments.

The higher the number, the better. A relatively high number means that for every dollar of investment in fixed assets, the company is producing more revenue than its competitors. A low number can suggest inefficient investments in property, plants and equipment. Conversely, an overly high number might suggest exceptionally old and depreciated assets that may need to be replaced very soon, eroding profits.

Conglomerates such as United Technologies, GE and Danaher all use extensive fixed assets in their businesses and are easily ranked using fixed-asset turnover. Applying that metric to the companies' most recent quarter gives fixed-asset turnover ratios of 8.68 for United Technologies, 2.22 for GE and 10.61 for Danaher.

Thus, Danaher is making the best use of its investment in fixed assets, followed by United Technologies and General Electric. Their share prices for this year have finished in the same order. Danaher's stock has risen 20%, United Technologies' 17% and GE's 4.2%. That would seem to suggest that fixed-asset turnover can help identify stocks poised to outperform.