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What Investors In Top Glove And Riverstone Holdings Limited Should Know: Their Growth, Profit Margins, and Returns on Equity

Credit: Rvierstone Holdings Limited

Top Glove (SGX: BVA)(KLSE: 7113.KL) and Riverstone Holdings Limited (SGX: AP4) are both rubber glove producers.

The former, which is dual-listed in both Singapore and Malaysia, is the largest gloves maker in the world with a global market share of around 25%. It produces gloves in both the healthcare and non-healthcare segments. The latter, meanwhile, produces rubber gloves that are used in the healthcare and cleanroom segments.

Both companies also operate mainly in Malaysia.

Given Top Glove and Riverstone’s many similarities, I thought it will be useful for investors in either or both companies if I were to take a look at a few simple but important metrics for both.

With that, let’s look at three aspects of Top Glove and Riverstone, namely, their revenue and profit growth, their profit margins, and their returns on equity.

Revenue and profit growth

The following table shows how Top Glove and Riverstone’s revenue and profit have changed in their last five completed fiscal years:

top-glove-and-riverstone-revenue-and-profit-table
Source: S&P Global Market Intelligence

We can see that both companies have been growing their top-lines and bottom-lines at a steady pace. But, Riverstone has been faster. That’s probably not too surprising, given Riverstone’s much smaller size.

Profit margins

I am focusing on two types of profit margins here: The gross profit margin and the operating profit margin.

The gross profit margin measures the percentage of profit a company makes for each dollar in sales it has after deducting all the costs that are directly related to the sale. Changes in the gross profit margin can be a sign of how much the pricing power of a company has shifted over the years.

As for the operating profit margin, it is calculated by dividing a company’s operating profit by its revenue. It is an indication of how well a business is managed as a whole. The higher the operating profit margin, the better it could be.

Here’s a table showing the gross profit and operating profit margins for Top Glove and Riverstone for the same time frame as the previous table:

top-glove-and-riverstone-gross-profit-and-operating-profit-margin-table
Source: S&P Global Market Intelligence

It’s interesting to note that Riverstone has consistently produced higher margins than Top Glove for the period under study. Another noteworthy point is that both companies have seen their margins increase over the past few years too.

Return on equity (ROE)

The return on equity gauges a company’s ability to generate a profit with the shareholders’ capital it has. The higher the return on equity, the higher the return on each dollar of shareholders’ capital.

Here’s how our two rubber glove manufacturers’ ROEs look like over their last five completed fiscal years:

top-glove-and-riverstone-return-on-equity-table
Source: S&P Global Market Intelligence

One thing to highlight here is that Top Glove and Riverstone have both been consistently producing double-digit ROEs for the period we’re studying.

A Foolish takeaway

This quick overview on both companies also allows investors to ask deeper questions.

For example, why are Top Glove’s margins consistently lower than Riverstone’s? If you dig into the business, you’d realise that Top Glove competes largely on volumes whereas Riverstone has carved a niche for itself within the cleanroom gloves segment.

By asking deeper questions, investors can better understand the companies they are investing in and hopefully make more informed investment decisions.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.