Intelligent Investor's Notes
DuPont Analysis - APOLLO vs LONBISC
Intelligent Investor
Publish date: Sun, 25 May 2014, 10:33 AM
Below table shows how the Latest 5 Years ROE of APOLLO and LONBISC were achieved based on DuPont Analysis.
|
Year
|
2013
|
2012
|
2011
|
2010
|
2009
|
|
Net Profit Margin
|
14.40%
|
10.84%
|
10.13%
|
15.47%
|
11.93%
|
|
Sales Turnover
|
0.8692
|
0.8341
|
0.7541
|
0.7023
|
0.8328
|
|
Financial Leverage
|
1.1133
|
1.1177
|
1.1213
|
1.1180
|
1.1141
|
|
ROE
|
13.94%
|
10.11%
|
8.56%
|
12.15%
|
11.07%
|
Table 1: ROE for APOLLO
|
Year
|
2013
|
2012
|
2011
|
2010
|
2009
|
|
Net Profit Margin
|
5.20%
|
5.43%
|
6.92%
|
8.09%
|
9.29%
|
|
Sales Turnover
|
0.4244
|
0.4122
|
0.3857
|
0.4474
|
0.4116
|
|
Financial Leverage
|
1.8815
|
1.8570
|
2.0790
|
2.0077
|
2.0269
|
|
ROE
|
4.15%
|
4.16%
|
5.55%
|
7.26%
|
7.75%
|
Table 2: ROE for LONBISC
It is clear from the table above that APOLLO has achieved a much higher ROE of 13.94% compared to that of LONBISC of 4.15%. The higher ROE of APOLLO was achieved with a relatively high income margin of 14.4% compare to LONBISC – 5.20% and higher sales turnover (0.8692 vs 0.4244). Furthermore, APOLLO was using a lower financial leverage of just 1. 11 compare to 1.88 of LONBISC.
Figure 1: Trends of ROE of APOLLO and LONBISC
Based on the last 5 years results, the ROE for APOLLO is growing while LONBISC ROE is shrinking. And, the growing of APOLLO’s ROE was achieved with growing Net Profit Margin instead of other elements and this is the most desirable way to achieve a higher ROE. While, LONBISC’s net profit margin is experiencing a negative growth and this is the main contributor to the shrinkage of the ROE.
|
A
|
B
|
|
|
Short-term loan
|
0
|
179,882
|
|
Long-term loan
|
0
|
48,848
|
|
Hire purchase creditors
|
0
|
10,823
|
|
Hire purchase
|
0
|
23,523
|
|
Total Debt
|
0
|
263,076
|
Table 3: Debt for APOLLO vs LONBISC
|
A
|
B
|
|
|
Cash & Equivalents
|
64,863
|
27,210
|
|
Investment - Securities
|
0
|
|
|
Current Liabilities
|
134,436
|
241,617
|
|
Excess Cash
|
0
|
0
|
Table 4: Excess Cash for APOLLO vs LONBISC
Refer to the Table 3, APOLLO is a debt free company and it can increase the financial leverage and improves its ROE. However, financial leverage is a double edge sword it can hurt ROE badly in the bad times. And, high leverage can make a company’s balance sheet unhealthy and become risky during economy downturn.
From the above analysis, we can make a conclusion that APOLLO is much more efficient than LONBISC as APOLLO have a higher ROE for the pass 5 year which achieved by higher net profit margin, higher asset turnover and low financial leverage. Furthermore APOLLO has an option to further increase the ROE by using financial leverage.
References:-
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Discussions
2 people like this. Showing 6 of 6 comments
compare to all others stock - food, drink have natural moat and defensiveness ... at least can sleep well at night kikiki
2014-05-25 12:45
to punt - kaunter minyak kapak
to invest - kaunter IT/technology or machineries/ services
to keep - kaunter makan minum
kikkikiikkiiii
2014-05-25 12:51
A good article telling investor to look at the business of the company, rather than looking at its share price movement, when buying a stock by Intelligent Investor here.
In Buffet's Letter to shareholders 1987, he advised investor to avoid unforced error in investing.
One way to reduce errors is to focus on studying high quality businesses with high returns on capital. In the letter to shareholders 1987, Buffett mentions that Berkshire’s seven largest non-financial subsidiary companies made $180 million of operating earnings and $100 million after tax earnings. But, he says “by itself, this figure says nothing about economic performance. To evaluate that, we must know how much total capital – debt and equity – was needed to produce these earnings.”
He then references an interesting study by Fortune that backs up his empirical observation. In this study, Fortune looked at 1000 of the largest stocks in the US. Here are some interesting facts:
• Only 6 of the 1000 companies averaged over 30% ROE over the previous decade (1977-1986)
• Only 25 of the 1000 companies averaged over 20% ROE and had no single year lower than 15% ROE
• These 25 “business superstars were also stock market superstars” as 24 out of 25 outperformed the S&P 500 during the 1977-1986 period.
The last one is really remarkable by any standard. So focus on the quality of the business, ie how much is the return of its capital.
2014-05-25 18:33
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2014-05-25 11:44