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The Three Numbers That Give Dukang Distillers Spirit

Flag_of_the_People's_Republic_of_China.svgI used to think that sorghum was what you got when you had a bad toothache. But sorghum – a type of grass – is, in fact, the starting material for baijiu, which is reckoned to be the most consumed liquor in the work.

Baijiu, which can also be made from rice, barley and wheat, also happens to be the produce of Dukang Distillers (SGX: GJ8).

Dukang Distillers, which is based in China, has, over the last couple of years, delivered above-average Return on Equity. Its RoE of 15% is significantly higher than the average for Singapore’s large caps. The RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 11%. So, while Singapore’s blue chips make $11 for every $100 of shareholder equity, Dukang makes around a third more.

Dukang’s Net Income Margin is about average for the Singapore market. At 12%, the company makes $12 of net profit for every $100 of sales it generates. Interestingly, its margin is higher than food producers such as Del Monte Pacific (SGX: D03) but lower than brewer Thai Beverage (SGX: Y92).

The company is, however, very good as making use of its assets. Its Asset Turnover, which measures the amount of sales generates on every dollar of asset, is 1. In other words, the company generates $1 of sales for every dollar of asset employed in the business. The market average is 0.5.

Dukang Distillers also uses a bit of leverage, but not excessively so. Its Leverage Ratio of 1.3 is quite a bit lower than the average for the Singapore market, which is 1.7.

By mixing together Dukang’s financial ratios, it is easy to see how the company makes money for shareholders. Its 15% Return on Equity is the product of a healthy Net Income Margin of 12%; a salubrious Asset Turnover of one and a hint of Leverage of 1.3.

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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.