LatinFinance - July/August 2014 - 39

150

M&E LF Brazil Stars Index

140
130
120
110
100

Ibovespa index

90
80

3/31/14

12/31/12

7/30/12

2/29/12

9/30/11

4/30/11

11/30/10

6/30/10

Base=100, 12/30/09

Source: Management & Excellence SA

pay and operational expenses.
Companies that publish sustainability reports do even better, indicating how much
they've spent on training, for example, or
how much time is lost to employee illness.
Copa stood out again on transparency -
M&E assigned it a 98.6% score in this regard.

Arca Continental and Femsa
are close behind, with scores of
97.4% each.
Riskiness of a company's
metrics - which M&E judges
according to their volatility over
the period - is another of the
core parts of the LatAm Stars
analysis. Here analysts measure variations in a company's
indicators, including earningsper-share, debt ratios, assets,
revenues and profits, with the
belief that a record of consistency suggests a firm will be less
risky in the future.
Chileans Parque Arauco
and Cencosud, and Colombia's
Grupo Éxito scored best when
it came to volatility. At the other end of the
scale, Mexicans Alfa, Femsa and Cemex are
judged the most risky of the indices components.
As the LatAm Stars index evolves, M&E
may select another couple of names from
other sectors to round out the group.
Education is one industry in contention,
notes Cox. LF

4/30/14

M&E LatinFinance Brazil Stars index vs the Ibovespa

5/31/14

Outperformance

1/31/10

calculated by M&E. All top 10 companies
achieved a B or higher rating, which means
their scores were 67% and higher.
That score takes into account some 800
data points analyzed by M&E, including
adherence to best practice, financial performance and management strategy. Ultimately, the indices seek to quantify management
practices in order to identify the best-run
companies, on the philosophy that these
are most likely to offer strong returns to
investors over the longer-term.
One ratio the analysts look is "executive
effectiveness" - the ratio of a company's net
profit relative to total compensation at the
executive level.
Copa Airlines and Cencosud stood out
in that regard, says M&E. Net profits at the
airline were close to 47 times executive pay,
for example, while that ratio stood at close
to 40 times at the supermarket operator.
Transparency is another important area
in the management score. Here, companies
listed in the US typically scored better, a
result of the country's stringent reporting requirements. Higher transparency is
displayed not just in the numbers that are
reported, but in the inclusion of a discussion of the figures and details on executive

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