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The Three Numbers That Fill BreadTalk’s Basket

BreadTalkLogoIt is quite hard to wander the streets of Singapore without bumping in a Toast Box, BreadTalk, Ramenplay, Din Tai Fung or Food Republic. The food and beverage outlets, which belong to BreadTalk Group (SGX: 5DA), are as much a part of our city as sun, sea and satay.

The food operator is not just a consummate operator of eateries but it is also an accomplished manager of its financial well-being. Put another way, BreadTalk not only makes some of the best Xiao long baos in town but it also boasts one of the highest Return on Equity on the Singapore market.

Whilst the average Return on Equity for the companies that make up the Straits Times Index (SGX: ^STI) is around 10%, BreadTalk’s return is a market-beating 15%. In fact, over the last three years the company has consistently delivered above-average returns for shareholders.

Interestingly, BreadTalk’s Net Income Margin is not particularly high. At 2.7% it is significantly below the market average of 19%. That said, it is not too dissimilar to the margins delivered by supermarkets Sheng Siong (SGX: OV8) and Dairy Farm (SGX: D01).

But what BreadTalk loses on the roundabout it makes up for on the swings. Its Asset Turnover of 1.4 is almost three times higher than the market average. In other words, the company generates $1.40 for every dollar of asset employed in the business. That puts it almost on par with fast-food outlet Old Chang Kee (SGX: 5ML).

To boost the Return on Equity, BreadTalk makes use of other people’s money. Its Leverage Ratio of 3.9, which has jumped from 2.7 two year’s ago, is considerably higher than the market average of 1.7.

By kneading together the three key ingredients, it is easy to see how BreadTalk fills its basket. It is the product of a low Net Income Margin of 2.7%; a proficient Asset Turnover of 1.4 and a beefy Leverage Ratio of 3.9.

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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.