In deciding who should join the exclusive club of 20 Top Companies, the FM looks closely at the historical financial performance of the companies and assesses their prospects for the years ahead.

Financial performance is measured by BFA McGregor, which aims to eliminate inconsistencies in the way companies report their earnings by standardising treatment of the figures (see "Definitions"). For example, the ways companies treat foreign exchange conversions are brought into a common formula.

One of the objectives is to identify companies that have a consistent track record in their performances. Numbers are considered over the long term - nearly a third of the overall score is derived from a five-year assessment of internal rate of return (IRR) and compound growth in earnings per share. IRR measures the company on its returns to shareholders - both dividend flows and capital appreciation in the share price.

This long-term view means that only companies that have been continuously listed for at least five years are eligible to be one of the Top Companies winners. So inevitably some worthy candidates - Spar and Telkom, for instance - are not included. Massmart makes its first appearance this year as it was listed only in 2000.

We used to omit companies with a market capitalisation of less than R1bn, the rationale being to ensure that we considered as potential blue chips only the companies that had the mass to be real investment prospects. This year we have decided to drop this hurdle, as there are a number of companies - like Cashbuild for example - that have a great track record but which haven't as yet breached that R1bn barrier.

We rank all qualifying companies by quantitative analysis of their past financial performance, using a combination of RoE in the latest year, IRR in share price over five years and EPS growth over five years. We then take the top 40 companies from that list as our finalists, and subject them to additional qualitative assessment.

For this we turn to the FM's team of specialist investment writers. They look at the 40 companies and score them on a range of criteria. Each criterion is given a different weight. General investment writers then moderate the group and ensure that common standards are applied to all finalists.

The judges consider how the company is run (and is likely to be run) by assessing corporate governance and the strength of management.

For the past three years we have also considered commitment to empowerment as a key strategic driver for all SA companies.

A company may be profitable and well run, but we also have to consider whether it is still a good buy . To do that, we look at its current share price as well as the free float and volumes of trade in the share. Companies whose great prospects have been more than fully priced by the market will fall down on this criterion.

We consider the profit prospects for companies in two ways. First we look at the prospects for the sector they operate in. Then we measure the company against its peers in that industry.

The scores from the FM team count for 60% of the final score, with 40% based on the quantitative analysis. The weighting is to ensure that our winners are based primarily on a forward-looking assessment.

The companies that make the top 20 have not only done well, they are expected to continue to outperform.

Each year several companies that operate below the usual blue-chip radar screen, and perhaps don't trumpet their success, are scooped up by the Top Companies awards process. Examples this year are Amaps, Brandco, CMH, Dawn, EOH - companies that seldom make the headlines, but quietly run great operations.