The Three Numbers That Have Weakened Biosensors International

How things have changed at Biosensors International (SGX: B20).

Singapore’s flagship biotechnology company that used to boast double-digit Returns on Equity (RoE) has seen the key measure of profitability slump to just 2.3%.

The drop in the RoE has, in part, been caused by a fall in efficiency. The company used to report an Asset Turnover of more than 0.5. But more recently, this has halved to just 0.19.

It means that the company has only generated $19 of sales for every $100 of asset employed in the business. The average for Singapore’s blue chips is around 0.5.

Interestingly, Biosensors International’s Leverage Ratio has not changed much. It still stands at about 1.3, which means that the company has not taken on excessive liabilities compared to assets. It has net cash on its books.

However, Biosensors International has been hurt by a sharp fall in Net Income Margin. Five years ago, its Net Income Margin was a trailblazing 27%. But last year, it had fallen to just 9%. It means that the stent maker only generated $9 profit for $100 of sales.

When put together, it helps explain the sharp fall in RoE. The disappointing Return on Equity of 2.3% is the product of a below-average Net Income Margin of 9%; a less-than-adequate Asset Turnover of 0.19 and a modest Leverage Ratio 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.