Philippine Markets Newsletter

MONDAY MACRO: Here’s what the Uniform ROAs look like for the top five margin and turn companies

October 4, 2021

Any discussion of margins and turns is incomplete when it is done without looking into how they relate to each other.

We’ve highlighted the most cost- and asset-efficient firms in the PSE and how accounting distortions have impacted their margins and turns. Now, we’ll be showing how these margin and turn distortions have ultimately impacted their Return on Assets (ROAs) as well. 

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Over the past couple of weeks, we’ve looked at the Philippine companies with the highest Uniform earnings margin and Uniform asset turns in 2020.

Both lists showed companies that had their own valid reason to earn a spot. It makes sense that supermarket chain Puregold (PGOLD:PHL) would have the highest asset turns, since its industry has been largely unhindered by the pandemic.

Meanwhile, gaming investment company Premium Leisure (PLC:PHL) generated the largest earnings margin, as it continues to benefit from City of Dreams Manila’s operations without incurring its costs.

That said, in many of them, their margin and turn performances look significantly different from what as-reported metrics portray. Due to accounting distortions, people likely misunderstood how much these companies’ margins and turns are driving ROAs.

We’ve discussed before what their margin and turn numbers actually are. Now, we’ll take a look at how much the distortions have impacted each company’s ROA.

In the table below, eight of the ten companies have material distortions in their ROAs, ranging from -686% to 267%. For example, MerryMart (MM:PHL) was actually generating negative returns in 2020, when as-reported ROAs claimed it to be a positive-ROA business.

Furthermore, eight out of ten companies have Uniform ROAs that are higher than what as-reported ROAs show. Specifically, Premium Leisure, Keppel Philippines (KPHB:PHL), Manila Water (MWC:PHL), and Puregold have Uniform ROAs more than double as-reported ROAs.

However, it’s interesting to note how none of the top five margin and turn companies made it to the top five Uniform ROA list. 

The group only recorded an average Uniform ROA of 8%, slightly above the global corporate average of 6%. This highlights how most of the group only excels at one ROA driver, but poorly performs at the other.

Ginebra (GSMI:PHL) did generate a 17% Uniform ROA, the highest among the group, but the company was still far from the 22% average seen in the top five Uniform ROA group.

Ultimately, this shows that while focusing on either cost efficiency or asset efficiency can lead to above average Uniform ROAs, aiming for the highest margins or the highest turns isn’t necessarily the best strategy.

What we need to look at is which companies within their industries have the highest-quality ROAs and if they’re correctly focusing on margins and turns.

That said, this requires knowledge of what the true ROA, margin, and turn numbers are, which only Uniform Accounting can reveal.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available. 

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data. 

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms. 

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful. 

Stay tuned for next week’s Monday Macro report! 


Angelica Lim
Research Director
Philippine Markets Newsletter
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