Three Numbers That Make Singapore Press Holdings Newsworthy

SPH For most, Singapore Press Holdings (SGX: T39) might be well known as a publisher of widely circulated newspapers like The Straits Times and a property developer that used to own retail malls, the Paragon and Clementi Mall.

SPH has since spun-off its malls into a real estate investment trust, aptly named as SPH REIT (SGX: SK6U), of which it has a majority holding of around 70%.

Looking at SPH’s share price performance over the past five years ending on 12 August 2013, it has not been a good time for investors. The company’s shares are essentially flat from where it began five years ago, even losing to the Straits Times Index’s (SGX: ^STI) near 20% return in the same period.

But that said, on certain measures, it does seem that SPH is performing better than the average company in the market. Its Return on Equity, a measure of the amount of profit that a company makes on each dollar of shareholder capital it holds, stands at 16%. That’s some six percentage points higher than the market average of around 10%.

My Foolish colleague David Kuo calls the Return on Equity a “one-duck-eat-three-ways-meal” (in a possible homage to the Peking-duck!) as it is a useful yardstick that can be further broken down into three other components. In turn, each can provide yet more useful insights into what makes a company tick.

So, what gives SPH that little bit of extra juice in attaining its above-average Return on Equity?

Interestingly, its Asset Turnover Ratio, a measure of the amount of sales that can be generated per dollar of assets held, is a fair bit lower than the average for the 30 companies that make up the STI. SPH’s turnover is at 0.3, while the average stands at around 0.5. It seems that SPH could do better in utilising its assets to generate revenue.

The Leverage Ratio measures the amount of income-producing assets a company has acquired in relation to its equity. In other words, we’re looking at the amount of ‘other people’s money’ that a company is using to fund its business. On this area, SPH’s Leverage Ratio of 1.7 is in-line with the market’s median so it does not seem that the company’s taking any undue risks with its balance sheet.

We’re left with the Net Profit Margin and that’s where SPH shines. Despite recent trends of falling profits, the company’s Net Profit Margin of 29% is still a lot better than the market average of 19%. That means while SPH is making $29 of profit for every $100 in sales, the average company’s only bringing in $19.

Putting it all together, we now see what makes SPH’s Return on Equity newsworthy. The company makes up for a sub-par Asset Turnover Ratio of 0.3 with a Leverage Ratio that’s on-par with the average at 1.7, and a stellar Net Profit Margin of 29%.

However, it pays to note that the Return on Equity is just one yardstick that’s used among many others when studying a business. Other important factors, like the sustainability of the business itself, also have to be considered. That’s a pertinent point for a company like SPH, where the bulk of its business is in a legacy-industry like print media.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.