Star 40

Star 40: How we do the rankings

Updated: 2013-05-15T03:26:37Z

By MARK DAVIS

The Kansas City Star

The Star 40 formula focuses on business basics, using yardsticks that measure any public enterprise’s success. This year’s rankings mark the 13th year under our current method — and the first as Star 40, rather than Star 50.

For the third straight year, the region’s number of companies meeting our criteria fell short of 50, so we now list the top 40 companies. They are among 46 that are based in Kansas or Missouri (excluding the St. Louis area), that publicly report financial results, and whose shares trade publicly.

We lost two companies since last year through mergers — Collective Brands Inc. and Mediware Systems Inc. — and two because they de-registered their shares with the Securities and Exchange Commission — Blue Valley Ban Corp and First Bancshares Inc.

But we added two: Inergy Midstream LP and CorEnergy Infrastructure Trust Inc. have become Star 40 eligible.

Two more, however, are on their way off the list. Layne Christensen Co. and Alco Stores Inc. have both announced plans to move their headquarters to Texas.

We gathered financial data from the companies’ SEC filings with help from Bloomberg.

The rankings compared the eight quarters of financial data for each company that most closely matched calendar years 2012 and 2011.

Star 40 ranks companies by their revenues, their earnings and their stock market value, and by the change in each of those values from the previous year.

A company’s Star 40 score consists of its average rank in the six categories. A perfect score would be 1, ranking first in every category.

To calculate a company’s growth in net income, we compared the change in its earnings with the absolute value of its 2011 net income.

Specifically, the formula subtracts the 2011 results from the 2012 results. Then we divided the result by the 2011 income number. But if a company had lost money in 2011, the minus sign produced nonsensical results, so we stripped away the minus sign before doing the division.

Analysts faced with such nonsense typically ignore the result, but that would force us to knock a company out of Star 40 contention if it had a loss in the prior year, even if it had posted a fabulous 2012 profit.

Our approach instead gives that company credit for rebounding after a bad year.

And it keeps readers focused on the measures of business success no matter what business a company is in.

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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