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The Three Numbers That Electrify Courts Asia

courts logoIn Singapore it is often a case of Courts Asia (SGX: SGX: RE2) or Challenger Technologies (SGX: 573) when it comes to buying electrical and electronics goods. And let’s not forget Best Denki, which runs one of Japan’s largest networks of chain stores.

Courts, which can trace its history to an 1850 tinker shop in Cambridge, has delivered one of the highest Return on Equity (RoE) in the market. At around 19%, its RoE is significantly better than the average for the Singapore market’s 10%, as measured by the 30 companies that make up the Straits Times Index (SGX: ^STI).

Interestingly, Courts Net Income Margin is not especially high. At 5.4% the retailer only makes a bottom-line profit of $5.40 on every $100 of sales it rings up at its till. The margin is uncannily similar to that of shopping-mall rival Challenger. What’s more, it closely resembles that of supermarket retailers Dairy Farm (SGX: D01) and Sheng Siong (SGX: OV8).

But what Courts lacks it Net Income Margin it makes up for in sales efficiency. The company generates $1.30 of sales for every dollar of asset employed in the business. So if you are ever approached by enthusiastic in-shop sales staff, just remember they are not being pushy, they are simply focussed on the Asset Turnover.

Courts Asia has taken on a fair bit of debt, though. Its Leverage Ratio of 2.6 is quite a bit higher than the market average’s 1.7.

Assembling the three key parts of Courts Asia’s financials, it is easy to see what sparks the electrical retailer. Its Return on Equity of 18.3% is the product of a low Net Income Margin of 5.4%; an above average Asset Turnover of 1.3 and a weighty Leverage Ratio of 2.6.

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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.