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The Three Numbers That Keep QAF Nourished

QAFlogoIf you have ever picked up a loaf of Gardenia bread, then you have been a customer of QAF (SGX: Q01). The company, which was formerly known as Ben & Company, not only bakes bread but it also processes meat in Australia, manufactures food and beverage and provides warehousing and logistics services.

By and large, QAF has delivered an acceptable Return on Equity (RoE) for shareholders over the last few years. The returns have been in the low to mid-teens, though it did dip to around 8% last year. That said, the company’s returns are about average for Singapore companies. The RoE for the companies that make up the Straits Times Index (SGX: ^STI) is about 9%.

QAF’s Net Income Margin is 3.5%. In other words, the food processor makes $3.50 on every $100 of sales. That is much lower than the market average of 19% but comparable with, say, Dairy Farm Holding (SGX: D01) and BreadTalk Group (SGX: 5DA).

That said, QAF, which was founded in the 1950s, is quite efficient with the use of its assets. Its Asset Turnover of 1.4 suggests that that the bread maker is generating $1.40 of sales for every dollar of asset used in the business.

QAF also makes use of debt to improve its Return on Equity. The company, which also sells goods under the Cowhead, Farmland and Hatton, brands, has a Leverage Ratio of 1.7. The average for Singapore-quoted companies is also 1.7

By slicing QAF’s Return on Equity into digestible portions, it is easy to see how the company remains nourished. Its RoE of 8.3% is the product of a low Net Income Margin of 3.5%; a high Asset Turnover of 1.4 and an average Leverage Ratio of 1.7.

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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.