The Three Numbers That Support City Developments Limited

Just how good is City Developments (SGX: C09) at delivering shareholder return?

Over the last ten years, the company has delivered a total return of 5.3%. This lags the returns that shareholders of CapitaLand (SGX: C31) and Hongkong Land (SGX: H78) have enjoyed over the same period. In the case of the former, it has been 11%, while the latter has delivered 16.5%.

Interestingly, City Development’s total return roughly mirrors its Return on Equity (RoE) of 6.4%. The RoE is the amount of profit that the company generates for every dollar of shareholder equity.

One of the drivers of the company’s Return on Equity has come from its above-average Net Income Margin. At 18.9%, City Developments generates S$18.90 of bottom-line profit on every S$100 of revenues. The average for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 15%.

City Developments cannot be described as massively efficient. But few asset-heavy property developers are. Its Asset Turnover of 0.18 suggests that it generates S$18 of sales on every S$100 of asset employed in the business. That said, City Developments leaves its benchmark peers in the shade. Hongkong Land’s Asset turnover is 0.05, while CapitaLand generates S$9.50 on every $100 asset employed.

Perhaps unsurprisingly, City Developments makes use of debt. It has total debts of S$6.7b compared to total equity of S$10.3b. Its Leverage Ratio of 1.9 allows it to run its business by effectively using other people’s money.

By deconstructing City Developments Return on Equity, it is easy to see how the company supports its business. Its RoE of 6.4% is the product of an above-average Net Income Margin of 18.9%; a low Asset Turnover of 0.18 and a decent dollop of Leverage of 1.9.

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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.