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The Three Numbers That Aromatise Fragrance Group

fragrance group logoProperty developer and hotel operator Fragrance Group (SGX: F31) has plenty to be proud of. Over the last twenty years it has grown from a provider of budget hotel rooms in Geylang to a Singapore condo developer of some note.

The company has something else to be proud of too. Its Return on Equity has never dipped below the mid-teens. Last year it was 15%, which was higher than the return achieved by Singapore’s blue chips. The median RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI) was around 9%.

At the heart of Fragrance Group’s strong Return on Equity is its high Net Income Margin. At 39%, it is more than twice that of the market average. It is also higher than developers such as CapitaLand (SGX: C31) and City Developments (SGX: C09).

In common with other developers, Fragrance Group does not pack too much of a punch in terms of efficiency. Its Asset Turnover is only 0.18. That implies that it only generates 18 cents of revenue for every dollar of asset employed in the business.

Fragrance Group is also quite highly leveraged. Its Leverage Ratio of 2.1 is higher than the market average of 1.6. Fragrance Group has almost as much debt on its balance sheet as shareholder equity.

By deconstructing Fragrance Group’s RoE, it is easy to see what makes the company smell good. Its Return on Equity of 15% is the product of a high Net Income Margin of 39%; a below average Asset Turnover of 0.18 and a hefty dollop of Leverage Ratio of 2.1.

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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.