iFAST Corporation Ltd (SGX: AIY) is an Internet-based investment products distribution platform provider.
In a previous article, I looked at iFAST’s revenue streams to help investors gain a better understanding of its business. In this piece, I will take the next step to understand the other important part of the company’s profit-equation, which is its cost structure.
Here’s a breakdown of iFAST’s costs in 2017:
Source: iFAST 2017 annual report
There are a few important things to note:
1. Staff costs is the main expense category of iFAST, accounting for 50% of the company’s total operating cost.
2. The “other” operating expenses category accounted for up to 40% of the total operating cost. Of the S$17 million in other operating expenses, S$6.4 million – or 38% – is related to iFAST’s operating leases.
3. The bulk of iFAST’s cost structure in 2017 is made up of fixed costs (costs that do not change with business volumes). This includes staff costs, depreciation, amortization, and in my opinion, most of the “other” operating expenses category. A quick and dirty estimation will indicate that fixed costs likely account for at least 75% of iFAST’s total operating cost.
4. The high proportion of fixed costs in terms of iFAST’s total operating cost means that any change in its sales volume will disproportionately impact the bottom line. As such, it is important for iFAST to scale its business over the long term in order to benefit from its operating leverage.
By understanding iFAST’s cost structure, investors can gain a clearer perspective on its future profitability.
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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. The Motley Fool Singapore has a recommendation for iFAST Corporation Ltd.