The Three Numbers That Light Up British American Tobacco Malaysia Berhad

It is not difficult to see why British American Tobacco Malaysia Berhad (KLSE: BAT.KL; KLSE: 4162.KL) has been able to deliver an annual total return of 42% and a share price rise of 19% over the last decade.

The company has one of the highest Returns on Equity (RoE) in the Kuala Lumpur Composite Index (KLSE: ^KLCI). At 161.9%, it is nearly 16 times higher than the Malaysian market.

The cigarette maker’s Net Income Margin (NIM) of 19.9% is roughly in line with the Malaysian market. It means that BAT makes around MYR19.90 on every 100 ringgit of sales rung up at its tills. The average NIM for the 30 companies that make up the KLCI is 20%.

Where BAT Malaysia leaves others trailing is in its use of assets. Its Asset Turnover of 3.7 implies that it generated MYR3.70 on every ringgit of asset at its disposal. That is nearly 10 times higher than the media Asset Turnover for the market.

The company also makes use of leverage. It had Total Liabilities of MYR660 million and Total Assets of MYR1.21 billion. That equates to a Leverage Ratio of 2.2, which is a smidgen higher than the Leverage Ratio for the Malaysian market.

By smoking out the components of cigarette maker’s Return on Equity, it is easy to see why it is lit up. Its Return on Equity of 161.9% is the product of a high Net Income Margin of 19.9%; an extraordinary Asset Turnover of 3.7 and a modest Leverage Ratio of 2.2.

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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.