The Methodology Behind Our Choices

June 12, 2008
So how did we come up with our Top 50 Employers of 2007, as well as our top EOEM companies? It all began with a list of 250 or so organizations of interest to Electronic Design’s readers and advertisers alike. This roster included U.S. public companies

So how did we come up with our Top 50 Employers of 2007, as well as our top EOEM companies? It all began with a list of 250 or so organizations of interest to Electronic Design’s readers and advertisers alike. This roster included U.S. public companies, private companies, subsidiaries and divisions of companies, and public agencies and research facilities like NASA and the military.

Then, things got tricky. The quality of one’s employment depends on many qualitative and quantitative factors, from the size of the company to the brand of coffee served in the break room. So, we needed to strip factors down to raw data so we could compare apples to apples. We specifically looked at concrete indicators of financial health, also including some feedback from our 2007 Reader Profile Survey to get some of those intangibles into the equation as well.

Our research started with the Lexis-Nexis service, including databases like Hoover’s and Standard & Poor’s. Despite the depth of data they offered, the latest information wasn’t always available. Also, private companies aren’t always so forthcoming with their numbers. Neither are companies outside of the U.S. Public agencies, research facilities, and company subdivisions don’t break out their key numbers either.

To maintain data integrity, then, we reluctantly narrowed the list down to U.S. public companies where data would be available through 10-K SEC filings for both 2006 and 2007, giving us a list of 101 companies. We built a formula accounting for overall financial data, employee data, sales, operating profit and operating profit margin, long-term debt and stockholders’ equity, long-term debt to shareholders’ equity ratio, total patents, stock prices, R&D expenses, design influence dollars, and our own Reader Profile Survey. This approach incorporates company strengths while pointing to possible areas of improvement.

Our research comprises data from 2006 and 2007, encompassing fiscal years, which typically don’t reflect the calendar year. We used the fiscal year for all financial data—employees, sales, operating profit, debt to equity, and research and development expense—basically anything related to the income statement or balance sheet. 10-K reports as well as annual reports and company Web sites provided this data. Information about patents, design influence dollars, and stock price relationships are based on full-year 2007 and/or results at year end, whichever was more applicable (Table 1). We then added bonus points based on last year’s Reader Profile Survey.

Factor By Factor Some of these factors may require explanation. For instance, we gathered employee data mostly from 10-K reports. In the few instances where it couldn’t be found, we used the company’s annual reports or information from its Web site. We gathered sales or total revenue data from the 10-K reports as well.

The 10-K reports provided the operating profit, which in some cases was different from what companies reported as “operating profit or loss.” For consistency’s sake, we didn’t include interest expense/income, other expense/income, or significant restructuring charges or “one-time” expenses or income in the calculation unless the amounts were small and didn’t materially alter the comparison. We focused on comparing the profit/loss generated solely by continuing operations.

Ford Motor is a perfect example. We evaluated the company without its large interest expense, which has basically been there for several years. Comparing Ford’s operating profit after including the interest expense would really mask some of the efforts the company has made to turn its situation around. Yes, high interest expense is a reality of the capital-intensive and slow-changing auto industry, but there is not much Ford can do about it year over year.

Operating profit margin was a simple calculation of operating profit divided by sales. Long-term debt and stockholder’s equity data was taken from the 2007 balance sheets. Long-term debt to shareholder’s equity ratio is simply the former divided by the latter. We calculated total patents based on a report sorted by company generated by the U.S. Patent and Trademark Office.

We took high, low, and closing stock prices from Yahoo Finance. The closing price was the December 2007 closing price shown, adjusted for dividends and splits, while the high price was the highest high price shown in any of the 12 months of 2007. Research and development expenses came from either a separate note contained within the 2007 10-K or from the income statement.

Design influence dollars came from iSuppli, an applied market intelligence research firm that covers the entire supply chain for the electronics industry. These dollars show the level of semiconductor purchasing driven by electronic equipment design activities at a company. This is an important measure of not only the number of designs made by a company, but also of the level of success those designs achieved in terms of how much semiconductor purchasing they drove.

Keeping Score We chose these factors because they would provide a quick, top-line view of how these companies are doing in our key data categories (Table 2). These line scores should provide a good feel for how a company has been performing recently. They should not be taken as the last word, though.

Many companies may not be seeing much year over year growth in these data categories despite significant sales volumes, operating profit dollars, or margins that sustain healthy businesses. Also, it is difficult to grow a business that already is very large. Then again, you typically want to see real growth on the sales line, as that leads to good news everywhere else.

Continued on page 2

Also, keep in mind that if the line scores indicated areas of concern for a company where there may be some improvement opportunities, they don’t tell you the root causes of those deficiencies without further analysis. The line scores are just a simple report card. Furthermore, they reflect 2007 versus 2006 performance, covering a one-year change in results. Many of these changes should be seen in a wider context of what a company has been doing for the last five or 10 years. So, the line score was based on:

  • Employee growth percentage (2007 versus 2006)
  • Sales growth percentage (2007 versus 2006)
  • Operating profit growth percentage (2007 versus 2006)
  • Operating profit margin improvement points (2007 versus 2006)
  • Long-term debt to shareholders equity ratio improvement points (2007 versus 2006)
  • 2007 total number of patents issued
  • Percentage change in patents issued (2007 versus 2006)
  • 2007 stock price closing as a percentage of 2007 stock-price high
  • R&D expense change percentage (2007 versus 2006)
  • Design influence on semiconductor spending dollars (2007)
  • Design influence on semiconductor spending percentage increase (2007 versus 2006)
  • 2007 ED Reader Profile Survey bonus points

We felt these factors gave us a good balance of financials, human resources, technology, stock market perceptions, and engineering. Companies that placed in the top 10 in each particular category got 10 points; companies that ranked between 11 and 20 got nine points; companies between 21 and 30 got eight points; and so on.

We gave companies that saw decreases from 2006 to 2007 a maximum of two points, so they weren’t overly penalized. Companies that didn’t appear in a particular category at all also got a maximum of two points so they weren’t overly penalized either. Similarly, we awarded two points for improvements in operating profit, operating margin, and debt to equity positions when there was an operating loss or negative equity so we wouldn’t overly reward a company. Then, we awarded bonus points based on employee responses to five questions on our 2007 Reader Profile Survey:

  • How many job promotions have you achieved at your current place of employment?
  • Do you feel that you are being challenged intellectually with the engineering projects you work on at your present job?
  • To the best of your knowledge, what is the engineering employment outlook at your company in the coming year?
  • Do you feel that your organization is more focused on employee retention this year as compared to a year ago?
  • How would you rate your present job security?

When companies had more than one employee respond to our survey, we divided their bonus points by the number of respondents to get an average, which the company then received. Overall, the total company line score is a simple sum of all the category points plus any bonus points assigned. The maximum total company line score, then, would be 120.

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