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With An ROE Of 2.29%, Can Broadway Industrial Group Limited (SGX:B69) Catch Up To The Industry?

Broadway Industrial Group Limited’s (SGX:B69) most recent return on equity was a substandard 2.29% relative to its industry performance of 10.93% over the past year. An investor may attribute an inferior ROE to a relatively inefficient performance, and whilst this can often be the case, knowing the nuts and bolts of the ROE calculation may change that perspective and give you a deeper insight into B69’s past performance. Today I will look at how components such as financial leverage can influence ROE which may impact the sustainability of B69’s returns. See our latest analysis for Broadway Industrial Group

Breaking down ROE — the mother of all ratios

Return on Equity (ROE) is a measure of Broadway Industrial Group’s profit relative to its shareholders’ equity. An ROE of 2.29% implies SGD0.02 returned on every SGD1 invested. In most cases, a higher ROE is preferred; however, there are many other factors we must consider prior to making any investment decisions.

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Return on Equity = Net Profit ÷ Shareholders Equity

ROE is measured against cost of equity in order to determine the efficiency of Broadway Industrial Group’s equity capital deployed. Its cost of equity is 8.94%. This means Broadway Industrial Group’s returns actually do not cover its own cost of equity, with a discrepancy of -6.65%. This isn’t sustainable as it implies, very simply, that the company pays more for its capital than what it generates in return. ROE can be split up into three useful ratios: net profit margin, asset turnover, and financial leverage. This is called the Dupont Formula:

Dupont Formula

ROE = profit margin × asset turnover × financial leverage

ROE = (annual net profit ÷ sales) × (sales ÷ assets) × (assets ÷ shareholders’ equity)

ROE = annual net profit ÷ shareholders’ equity

SGX:B69 Last Perf Jun 8th 18
SGX:B69 Last Perf Jun 8th 18

Basically, profit margin measures how much of revenue trickles down into earnings which illustrates how efficient the business is with its cost management. Asset turnover reveals how much revenue can be generated from Broadway Industrial Group’s asset base. The most interesting ratio, and reflective of sustainability of its ROE, is financial leverage. Since ROE can be inflated by excessive debt, we need to examine Broadway Industrial Group’s debt-to-equity level. At 23.94%, Broadway Industrial Group’s debt-to-equity ratio appears low and indicates that Broadway Industrial Group still has room to increase leverage and grow its profits.

SGX:B69 Historical Debt Jun 8th 18
SGX:B69 Historical Debt Jun 8th 18

Next Steps:

ROE is one of many ratios which meaningfully dissects financial statements, which illustrates the quality of a company. Broadway Industrial Group exhibits a weak ROE against its peers, as well as insufficient levels to cover its own cost of equity this year. Although, its appropriate level of leverage means investors can be more confident in the sustainability of Broadway Industrial Group’s return with a possible increase should the company decide to increase its debt levels. Although ROE can be a useful metric, it is only a small part of diligent research.

For Broadway Industrial Group, there are three relevant aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Future Earnings: How does Broadway Industrial Group’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Broadway Industrial Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.