# 1 Simple Number To Help Investors Understand 3 Aspects Of Inari Amertron Bhd

Inari Amertron Bhd (KLSE: INARI) is a semiconductor player listed in Malaysia. The company has been one of the top performing companies in the country, up by close to 2,000% in the last five years.

In this article, we will try to understand the attractiveness of this business from the perspective of return on equity (ROE).

Why ROE?

ROE is a measure of the profitability of each dollar of investor’s capital when invested in a business.

For example, an ROE of 20% means that a company generates \$0.20 for every dollar of shareholders’ capital invested in the business. The higher the ROE, the more profitable each dollar of investor’s capital is.

The simplified calculation that most investors use is as follows:

ROE = net profit / shareholder’s equity

Here, however we will take a different approach to calculate the ROE:

ROE = asset turnover x net profit margin x asset/equity

With that, let’s calculate the ROE for Inari Amertron.

Asset Turnover

Asset turnover measures the efficiency of a company’s use of its assets in generating sales revenue. The calculation of asset turnover is sales divided by asset.

For Inari Amertron, the asset turnover for the 2016 was RM1,043 million / RM876 million = 1.19 times.

This means that for every RM1 of asset employed in the business in 2016, the company generated a sales of RM1.19.

Net profit margin

Net profit margin measures the percentage of sales that is left over to shareholders after deducting all the expenses.

In 2016, the net margins for Inari Amertron was RM147 million / RM1,043 million = 14.1%

To put this in perspective, the company received 14.1 sen in net profit from every RM1 in sales, after deducting all the expenses.

Gearing

The asset/equity ratio shows the relationship of the total assets of the firm to the portion funded by shareholders’ equity. A higher ratio means that the company funds its assets with more liabilities.

In 2016, Inari Amertron‘s gearing ratio was RM876 million / RM681 million = 1.29

Here, for every RM1 of equity invested in the business, Inari Amertron employed 0.29 times in liability.

Conclusion

Putting all three numbers together, the ROE for Inari Amertron in 2016 was 21.6%.

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned.