1 Simple Number To Help Investors Understand 3 Important Aspects Of Global Logistic Properties Ltd&rsquo s Business

ROE = Net Profit / Shareholder&rsquo s Equity

But, the ROE can also be calculated using a different approach shown below:

ROE = Asset Turnover x Net Profit Margin x Leverage Ratio

Doing so will reveal three important aspects about a company: How well it is managing its assets, how efficient it is at turning revenue into profit, and how much financial risk it could be taking on. For more information about this formula for the ROE, you can check out  here.

With that, let&rsquo s turn our attention back to the ROE of Global Logistic Properties.

The actual numbers

The asset turnover measures the efficiency of a company in using its assets to generate revenue. It is calculated by dividing a company&rsquo s total revenue by its assets.  In its financial year ended 31 March 2016 (FY2016), Global Logistic Properties had total assets of US$23.13 billion and total revenue of US$777.5 million. These result in a low asset turnover of 0.034.

The net profit margin measures the percentage of revenue that is left as a profit after deduction of all expenses.  In FY2016, the net profit margin for Global Logistic Properties was a fat 133% (a profit of US$1.033 billion and revenue of US$777.5 million).

Lastly, we have the leverage ratio, which shows the relationship of a company&rsquo s total assets to its equity. It is calculated by dividing total assets by equity.  A  higher ratio means that a company is funding its assets with more liabilities, hence resulting in higher risk.  Global Logistic Properties has a pretty healthy leverage ratio of 1.76 given its total assets and equity of US$23.13 billion and US$13.16 billion, respectively.

When we put all the three numbers together, we arrive at a ROE of just 7.9% for Global Logistic Properties in FY2016.