When it comes to Los Angeles-based companies that provide the best return for shareholders, firms involved in the licensing, manufacturing and retailing of consumer goods are the perennial heavyweights.

Again this year, those industry sectors lead the Los Angeles Businesses Journal’s annual list of most profitable companies, which is based on average three-year return on equity as of the end their most recent fiscal year.

Cherokee Inc., which licenses trendy, value-priced clothing, accessories and home furnishings sold in Target, Mervyns and other retailers, topped the list for the second year. Just behind was premium denim manufacturer True Religion Apparel Inc., natural soda manufacturer Hansen Corp., value-priced retailer Big Five Sporting Goods Corp. and nutritional supplements marketer Herbalife Ltd.

The top 20 companies on the Business Journal’s list had average ROEs ranging from nearly 90 percent for Cherokee to just over 26 percent for commercial real estate service giant C.B. Richard Ellis Group Inc. Those healthy returns are especially impressive given the high cost of doing business in California.

Overall, 136 of the largest public companies in L.A. County reported positive return on equity in 2006, and 118 of them achieved it in their three-year average.

“It just shows the strength and diversity of the companies that choose to be in business here,” said Jack Kyser, chief economist for the Los Angeles Economic Development Corp. “You have to be efficient to do well in California, and that sets you up to do well around the world.”

Big 5 is a good example of a company that has found and kept to its niche. While the company last week reported that same-store sales slid in the second quarter, its business model tends to enable the company to do well even in a slowing economy and a highly competitive Southern California retail environment.

Big 5 locates its stores in older shopping centers, which keeps real estate costs low, Susquehanna Financial Group LLC analyst John Shanley said. But the company also markets itself like a big box retailer, buying full-page color newspaper ads to promote its weekly specials.

“They sell branded products at reasonable prices, which encourages their customer to drive out of their way to shop there,” said Shanley, who considers the company’s share fairly priced at its current $24 a share. “They’re also different in that they tend to attract a more mature customer, rather than trying to go head-to-head with the other chains for the teenage male.”

Cherokee runs an even leaner operation, enabling it to pay a generous $3 dividend to shareholders. It has only 17 employees at its Van Nuys headquarters and doesn’t do its own manufacturing. In addition to the highest three-year average, Cherokee also had had the second highest 2006 ROE at 118 percent.

“They are a very efficient operator with very little capital costs, so of course they are profitable,” said Jody Kevin Kane, a retail analyst for Sidoti and Co. “They have good relationships with their retailers and a well-established brand that they don’t have to do a lot of maintenance on, plus they don’t have to spend capital revamping retail stores.”

It’s a somewhat different story at True Religion, which targets a more upscale, fashion-forward clientele. The company’s average ROE hit 80 percent last year, higher than the previous year’s 63 percent. Even so, the single-year return for 2006 was just under 48 percent, significantly lower than the previous two years. While net income was up in 2006, common equity was up even higher as investor interest pushed the company’s stock price up.

“They’re a relatively new company, run very efficiently, with a popular, hard-to-copy product,” Kane said. “Their products go in and out the door quickly, so retailers like that.”

In general, the Business Journal’s criteria for selecting the most profitable firms tends to favor smaller businesses with modest market capitalizations and capital costs. Maintaining a high ROE requires companies to keep improving on their earnings each year, because shareholder equity the numerator in the equation gets larger.

For example, Walt Disney Co., the region’s largest company by market capitalization, ranks only 84th on the profitable list, with an average ROE of 10 percent. Despite significant capital costs, No. 2 Amgen Inc. came in at a slightly better No. 53 on the profitable list with an average ROE of 15 percent.

On this year’s list, the largest company to make the most profitable top 10 was dialysis center operator DaVita Inc., which has a $5.7 billion market cap. It reported an average ROE of 38 percent, putting it No. 8 on the profitable list. It topped the list three years ago.

Two other companies in the top 10, home builder Ryland Group Inc. and former subprime lender Fremont General Corp. (No. 10), will be challenged to repeat their performance next year. That’s due to the residential real estate market slump and collapse in the subprime lending business, which Fremont recently exited.