The Three Numbers That Malnourish Mewah International

Food producer Mewah International (SGX: MV4) delivers one of the lowest Returns on Equity (RoE) amongst the midcaps. At 0.5 it is about 15 times lower than the market average.

Mewah’s low RoE can be traced back to its low Net Income Margin. At 0.08% it means that the maker of bulk vegetable oil and fats makes S$8 for every $100 of sales it rings up. The average for the 30 companies that make up the Straits Times Index (SGX: ^STI) is about 15%.

Mewah’s Net Income Margin has been on the low side for a while. In both 2012 and 2013 they were 0.7%, while in 2011 it was 0.9%. By way of comparison, peer Indofood Agri Resources (SGX: 5JS) also has low margins. It has been around 5.5% over the last three years.

What Mewah lacks in margin it more than makes up for in efficiency, though. The company’s Asset Turnover of 3.2 is almost 6 times higher than the market. It would suggest that Mewah relies on a quick turnover of stock to compensate for lower margins.

Mewah does use some leverage. Its Leverage Ratio of 2.1 is higher than the market average of 1.7.

By deconstructing Mewah International’s Return on Equity, it is easy to see why it looks malnourished. Its RoE is the product of a very low Net Income Margin of 0.08; a very impressive Asset Turnover of 3.2 and a 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.