How Profitable Are The Different Businesses Of Singapore Exchange Limited?
Singapore Exchange Limited (SGX: S68) is the only stock exchange operator in Singapore. But it does more than just run the local bourse – the company has three business lines, namely, Equities & Fixed Income, Derivatives, and Market Data & Connectivity.
In this article, I want to look at how profitable each business segment within the company is. More specifically, I want to understand how well each segment is doing when it comes to making a profit on each dollar of Singapore Exchange’s equity that they employ. In other words, I want to calculate the return on equity for each segment. (The return on equity is found by dividing each segment’s profit by its net assets, or equity.)
Doing so will give us a better overview on the economic characteristics of the different businesses within the company. The table below shows the operating profit, equity, and return on equity that each of Singapore Exchange’s three business segments made in its fiscal year ended 30 June 2016 (FY2016):
Source: Singapore Exchange FY2016 annual report
From the table above, we can see that the biggest profit contributor – the Equities & Fixed Income segment – was also the most profitable segment of the three.
In any case, all three of Singapore Exchange’s business segments show very high returns on equity, indicating that the company’s requirement for capital is low as compared to the average business.
From this example, investors can see that a monopoly business such as Singapore Exchange can generate enormous returns with its shareholders’ equity.