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The Three Numbers Fill Sheng Siong’s Basket

ShengSiongLogoSheng Siong (SGX: OV8) might only be Singapore’s third-largest supermarket chain but there is nothing third-rate about its financials. The food retailer has one of the highest Returns on Equity (RoE) in the Singapore market.

Whilst the average RoE for Singapore’s Straits Times Index (SGX: ^STI) companies is a respectable 10%, Sheng Siong generates $27 for every $100 of shareholder equity employed in the business.

Sheng Siong is a low-cost operator as reflected by its Net Income Margin of 6.5%. By comparison, the market average is around 19%. But what Sheng Siong lacks in terms of margin it more than makes up for in Asset Turnover. It generates $2.60 of sales for every dollar of asset used in the business. The market average is an unremarkable $0.50 for every dollar of assets.

The supermarket also uses borrowings but not excessively so. Its Leverage Ratio of 1.6 is about average for the Singapore market.

Putting together the three components of Sheng Siong’s financials, it is easy to see how the company fills its investors’ baskets. Its RoE of 27% is the product of a low Net Income Margin of 6.5%; a high Asset Turnover of 2.6% and a modest Leverage Ratio of 1.6.

There are many ways for a business to generate a return for investors. Sheng Siong does it by piling ‘em high, selling ‘em cheap and borrowing a bit of money.

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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.