The Three Numbers That Challenge CapitaLand Limited

It is a stalwart of the Straits Times Index (SGX: ^STI). It is even be one of Singapore’s biggest companies. But property developer CapitaLand (SGX: C31) is not one of the benchmark index’s top performers in terms the returns it generates on shareholder equity.

At 4.1%, CapitaLand’s Return on Equity is not high. That said, nor are the returns that Hongkong Land (SGX: H78) and City Developments (SGX: C09) generate for their shareholders either.

Interestingly, CapitaLand’s low Return on Equity is not due to its Net Income Margin, which stands at an impressive 23.9%. It means that the company has generated S$23.90 on every $100 of sales. That is significantly higher than the median margin for Singapore’s 30 biggest companies.

However, CapitaLand’s Asset Turnover is a very modest 0.09. It implies that the developer has only generated S$0.09 of sales on every dollar of asset employed in the business. That is around five times lower than the market average.

CapitaLand also makes use of borrowings, which is not unusual for a property developer. Its Leverage Ratio of 1.9 is high but not worryingly high.

By deconstructing CapitaLand’s Return on Equity, it is easy to understand the challenges the company faces. Its low RoE of 4.3% is the product of a strong Net Income Margin of 23.9%; a modest Asset Turnover of 0.09 and a splash 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.