Top 5 most profitable ASX large-cap shares of 2023

These big and bustling companies were the King Kongs of profitability last year.

Mitchell Lawler

Mitchell stumbled upon the concept of investing when in high school, devotedly urging his parents to put some money into a handful of technology companies with increasingly popular products among his demographic – many of which have gone on to great success. It wouldn’t be until 2017, some five years later, that Mitchell became an investor of his own money. Having studied and worked as a mechanical engineer in the building services industry, Mitchell takes a methodical and analytical approach to evaluating businesses. Rather than relying purely on numbers, Mitchell drills beyond a company’s metaphorical mantle to unearth obscure patterns or competitive advantages that would go otherwise unnoticed. His expertise resides within areas such as software, consumer goods, and building services equipment. However, his quest to find quality companies that set the industry standard and flex some degree of an impenetrable position has no limits – small cap to mega cap, cosmetics to healthcare – if it’s an exceptional business it’s on his radar.

Published January 30, 2024 3:48 pm AEDT

The wise and wealthy Warren Buffett, CEO and co-founder of Berkshire Hathaway Inc, has previously insisted investors ought to "Look for companies with high profit margins". A high margin is typically linked to some form of competitive advantage, enabling a company to generate above-normal returns.

Excess earnings can be beneficial for businesses and shareholders in many ways. Firstly, it can fortify the balance sheet to insulate against black swan events. Alternatively, the capital can be redeployed by the company to fuel growth. Another option is to turn on the dividend tap, passing on those lucrative profits to shareholders.

In 2023, the five most profitable ASX large-cap shares (market capitalisation above $10 billion) all scored net margins greater than 35%. Meanwhile, the collective net margin of the S&P/ASX 200 Index (ASX: XJO) — Australia's top 200 listed companies — hovers around 11%.

A girl is handed an oversized ice cream cone with lots of different flavours. — Image source: Getty Images

The ASX large-cap shares with magnificent margins

Here are the Aussie companies that raked in monumental margins last year.

5. Commonwealth Bank of Australia

Australia's biggest bank is also its most profitable. Beating out the other three members of the big four, the Commonwealth Bank of Australia (ASX: CBA) posted a net profit margin of 38.6% last year, its best since FY2017 — a time before the banking Royal Commission.

As with most banks in 2023, CommBank basked in the glory of higher interest rates. As rates rose, so did the lender's net interest margin — a key determinant of overall profit margins.

The CBA share price rallied 9% in 2023 — beating all the other big four banks bar ANZ Group Holdings Ltd (ASX: ANZ).

4. Pro Medicus Limited

Dialling it up a notch, this next ASX large-cap share achieved its highest net profit margin on record last year. Medical imaging software provider Pro Medicus Limited (ASX: PME) profited 48.6 cents from every dollar of revenue it generated in FY23.

The company's margin benefits from the innate unit economics of its software. Pro Medicus can onboard additional healthcare customers onto its products at a negligible cost, increasing margins as the company scales.

The Pro Medicus share price surged 73% throughout 2023.

3. Goodman Group

Now we're into the 50-plus club. Australian integrated commercial and industrial property company Goodman Group (ASX: GMG) took home a 52.1% net profit margin in 2023. Despite increased property investment and development income, the lofty figure declined from the 71% margin in the prior year.

The year saw Goodman retain an occupancy rate of 99% across its property portfolio with growing rents. Notably, the business holds $81 billion in assets under management and $13 billion of work in progress while maintaining a debt-to-equity ratio below 20%.

Goodman shares gained a glamorous 46% during the year.

2. Washington H Soul Pattinson and Company Ltd

At 121 years old, the investment house known as Washington H Soul Pattinson and Company Ltd (ASX: SOL) and its earnings margin is no worse off for its age. The large-cap ASX share takes the runner-up position in 2023 with an impressive 58.4% net margin.

The period provided improved net cash flows from Soul Patts' investments ($118.5 million versus $116.9 million) despite a reduced weighting toward ASX large-cap shares in FY23 (21% versus 31%). A greater allocation towards diversified financials, industrials, and materials may have helped.

Reclaiming lost ground from 2022, the Soul Patts share price climbed 19% in 2023.

1. Pilbara Minerals Ltd

Despite holding the mantle as the most shorted ASX share for too many weeks to recall, Pilbara Minerals Ltd (ASX: PLS) was the most profitable large-cap of 2023. The lithium miner earned 58.8 cents from every dollar of revenue, as per its last full-year result.

It was a completely different landscape for lithium shares in the year leading up to FY2023 results. Prevailing prices for the commodity were far beyond even some of the highest-cost producers, minting money for those capable of mining lithium cheaply.

The company's latest quarterly update paints a slightly different picture.

Shares in this ASX large-cap share lifted 5% in 2023, ironically the smallest return among the five.

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