The Three Numbers That Help SMRT Motor

smrt logoWhether you get around Singapore by train, bus or taxi, there is a high chance that you will be climbing aboard a vehicle operated by SMRT (SGX: S53).

The company operates three of the mass rapid transit system; it runs a fleet of 1,400 buses and it still has time to manage 3,400 taxis.

SMRT is not just good at helping people get around the Garden City but it is also very good at generating profit for shareholders. Its Return on Equity (RoE) of 15.8% is higher than the average for Singapore’s 30 companies that make up the Straits Times Index (SGX: ^STI). The Singapore blue-chip average is around 11.4%.

SMRT’s Net Income Margin is not especially high, which is comforting to know. After all, none of us want to pay over the top to get around town. At a smidgen above 11%, the transport company’s margin is below the market average’s 18%.

However, what SMRT loses out on in terms of profitability, it makes up for in efficiency. An Asset Turnover of 0.6 implies that SMRT is generating 60 cents of revenue for every dollar of asset employed in the business. It is not quite as high as peer ComfortDelGro (SGX: C52), which generates 75 cents of sales on every dollar of asset.

SMRT also uses a fair bit of borrowings. Its Leverage Ratio of 2.2 is higher than the average borrowings taken on by Singapore’s blue chip companies.

By dismantling SMRT’s Return on Equity, it is easy to what makes the company motor. Its RoE of 15% is the product of a respectable Net Income Margin of 11.2%; an efficient Asset Turnover of 0.6 and a Leverage Ratio of 2.2.

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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 Director David Kuo doesn’t own shares in any companies mentioned.