Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 312

We have many world best practice companies

Overall, Australia’s businesses are way below world best practice (WBP) when it comes to profitability and have been for decades. Average returns on shareholder funds after tax (ROSF or Return on Investment, ROI) across the nation’s 2.3 million businesses have averaged just 3.7% over the past three decades (compared with the 10-year government bond rate averaging 5.5% over that period), although with a better 4.2% in 2018. Our largest 2,000 corporations averaged 6.9% ROI, and our Best 100 did a little better at 8%. The WBP level is 22%.

What do we mean by world best practice?

In this article, I have treated WBP as a company profitability level above 22% ROI, not a single 'best' as we might do with best practice in other comparisons (such as OH&S, triple bottom line, stakeholder action). Even with best practice processes and products there are often subtle if not significant differences.

It's instructive to see how WBP has evolved through the ages of economic progress.

  • The Agrarian Age, up to the late 18th century. WBP profitability was probably around the 10-year bond rate of about 5.5%.
  • The Industrial Age, up to the mid 1960s. WBP profitability was around double the bond rate, at about 11%.
  • The current Infotronics Age, to the middle of the 21st century. WBP profitability has doubled again to 22%. The added returns come from intellectual property, brand strength, culture, etc, which often remain off balance sheet although shareholders accept them as real in valuing a company. The massive change has been in the value of intellectual property ahead of the audited net assets.

Global performance comparisons

All of the ROI averages of Australian companies stated in the first paragraph are just over half the averages in the USA.

However, Australia had more than one in 10 of our largest 2,000 - that account for 46% of the nation’s $5.3 trillion revenue in 2018 - achieving WBP of 22% in ROI terms over the 3-year period to 2018. Sadly, three in 10 lost money over the same period.

We see the same performance gap in our 30 largest listed stocks (by market capitalisation) compared with the 30 largest NYSE-listed stocks (the Dow Jones Index list) below.

So, a lot of share portfolios and SMSFs have become more heavily weighted into US equities in recent times (directly or via managed funds and ETFs). That has been a no-brainer when one sees the diversity of performance between the All Ordinaries, S&P500 and NASDAQ in the next chart.

Tell us some good news about Australia

But, as always, there is good news as well as sobering news as shown below.

world best practice

Some 42 companies in the Best 100 Listed Stocks achieved or bettered the WBP of 22% ROI in the three years to 2018, and the weighted average of the 100 was a commendable 18.9%.

The good performance took place across all five industry sectors with the toughest sector - the secondary sector of manufacturing, utilities and construction - performing best. Most of the 100 Best were focused companies with only five being diversified, and even they were theme conglomerates rather than dangerous classic conglomerates which all fail eventually.

The best news of all is when we look at the Best 50 Listed companies over a 5-year period to 2018, and compare their weighted performance with the All Ordinaries Index, as below.

world best practice

A million dollars invested in the Best 50 five years ago would have yielded a capital value of $2.5 million by 2018, a 30% pa return, plus dividends. The All Ords would have been worth just $1.15 million plus dividends.

Our Best 50 not only outpaced the S&P500, but also the NASDAQ. It would seem fundamentals do matter.

 

Phil Ruthven is Founder of the Ruthven Institute, Founder of IBISWorld and widely-recognised as Australia’s leading futurist.

A full 40-page online Summary of the latest Business Performance results is available from www.ruthven.institute along with a staggering amount of other strategic information.

RELATED ARTICLES

Why stock prices are a distraction

Is the speculative fever in 'hot stocks’ over?

Gullible travels, or are Aussies more sceptical?

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.