| Total Assets
A significant portion of total
assets (63.7 per cent or $1,593 billion) in the corporate sector
were held by companies in the financial services sector, which
was higher than the sector’s share of shareholders’ equity (45.6
per cent). This was mainly due to the large and highly liquid
assets held by banks in the sector.
Besides financial services
sector, the other sectors holding considerable assets were real
estate & business services (8.9 per cent), manufacturing (8.6
per cent) and commerce (7.7 per cent). (Chart 3)
More than half (53.9 per cent) of
assets of local-controlled companies were in financial services
sector. Significant proportions of assets were also accrued to
the real estate & business services (16.0 per cent) and
transport & communications (9.1 per cent) sectors. (Table 2)
Compared with their
local-controlled counterparts, foreign-controlled financial
services companies accounted for an even higher proportion of
assets (71.0 per cent) within foreign-controlled companies, on
account of the extensive and highly liquid assets of foreign
banks. Other sectors holding significant assets were
manufacturing (10.7 per cent) and commerce (8.5 per cent).
Foreign-controlled companies
owned slightly more than half (57.3 per cent) of the $2,500
billion assets in the corporate sector in 2002. About two-thirds
(63.9 per cent) of assets in the financial sector were
attributed to foreign-controlled enterprises in the sector.
In the non-financial sectors, the
assets of foreign-controlled companies constituted less than
half (45.7 per cent) of total assets as a whole. However, such
companies still held more than half of the assets in major
sectors such as manufacturing (70.8 per cent) and commerce (63.0
per cent).
Financial Structure of the Corporate Sector
The equity ratio1
is a useful measure to analyse the financial structure of the
corporate sector.
The dependence of a company on
external financing (i.e. funding not from the shareholders or
its overseas head office for local branches of foreign
corporations) can be indicated by its equity ratio. An
enterprise with a low equity ratio depends more heavily on
external financing than one with a higher equity ratio.
Overall equity ratio in the
corporate sector stood at 0.27, which was not significantly
different from the ratio (0.26) in 2001. Sectors which were
least dependent on external financing were manufacturing and
transport & communications. In manufacturing, internal funding
constituted 54 per cent of total assets while the ratio in
transport & communications was 0.51. On the other hand,
dependency on external financing was highest in insurance
services (with equity ratio of 0.09) and construction (0.16)
sectors. (Chart 4)
The equity ratio of
local-controlled companies (0.36) was substantially higher than
those which were foreign-controlled (0.21) due mainly to the low
equity ratio recorded by foreign-controlled companies in the
financial sector. This was in line with the lower shareholders’
equity of foreign-controlled companies in financial services
sector. (Table 3)
Equity ratios of local- and
foreign-controlled companies were more comparable in
non-financial sectors such as commerce, insurance services, real
estate & business services and construction.
Performance of the Corporate Sector
Two measures are usually used to
gauge the performance of the corporate sector, namely, the rate
of return on total assets1
(ROA) and the rate of return on total equity1
(ROE).
ROA measures the efficiency in
the use of resources that are available to the companies. ROE is
a measure of company profitability providing the rate of return
that companies have earned on the capital provided by the
shareholders after accounting for payments to all other
providers of capital.
Return on Total Assets (ROA)
Overall operating efficiency of
companies declined in 2002 as ROA dipped from 4.0 per cent in
2001 to 3.3 per cent in 2002. (Chart 5)
The decline in ROA was more
significant in two major sectors: financial services and
transport & communications sectors. ROA in the financial
services sector dropped to 3.0 per cent in 2002 from 4.1 per
cent a year earlier, while the transport & communications sector
saw a fall in ROA to 4.7 per cent from 6.4 per cent.
However, operating efficiency of
the other major sectors such as manufacturing, commerce and real
estate & business services improved. Among the major sectors,
manufacturing companies, with ROA of 7.2 per cent in 2002, were
the most efficient. (Chart 6)
The decline in ROA was registered
in both local- and foreign-controlled companies. While ROA of
foreign-controlled companies in financial services and transport
& communications were lower compared with the previous year, the
ROA of foreign-controlled companies in manufacturing, commerce,
real estate & business services, insurance services improved in
2002. (Table 4)
Operating efficiency of majority
of local-controlled companies continued to lag behind their
foreign-controlled counterparts. Except transport &
communications sector, local-controlled companies in other major
sectors had lower ROA compared to their foreign-controlled
counterparts in similar sectors.
Return on Total Equity
(ROE)
Overall return on equity (ROE)
improved from 6.9 per cent in 2001 to 7.8 per cent in 2002. The
improvement in profitability was attributed to
foreign-controlled companies.
The increase in profitability was
registered across most major sectors, except transport &
communications sector. ROE of companies in financial services
rose to 7.1 per cent in 2002 from 6.5 per cent in 2001 while
manufacturing companies generated higher return of 12.2 per cent
compared to 10.6 per cent.
Real estate & business services
companies returned to profitability in 2002 with ROE of 2.6 per
cent after registering negative return the year before. The
insurance services sector remained the most profitable sector
with ROE of 17.3 per cent in 2002. While the construction sector
continued to be the laggard, its negative ROE also improved from
-10.4 per cent in 2001 to -5.7 per cent in 2002. (Chart 7)
ROE of local-controlled
enterprises eased to 4.6 per cent in 2002 from 5.4 per cent in
2001. In contrast, profitability of foreign-controlled companies
improved to 12.6 per cent from 9.2 per cent in the same period.
Foreign-controlled companies in all major sectors did better
than the local-controlled companies in similar sectors (Table 5)
Foreign-controlled companies
registered higher ROE in nearly all the major sectors (except
transport & communications) in 2002 compared to 2001. Among
local-controlled companies, ROE deteriorated in financial
services, commerce, transport & communications and insurance
services.
Technical Note
Objective
The data presented in this report
were compiled from the results of the Survey of Financial
Structure and Operations of Companies conducted annually by the
Department of Statistics.
The data are used by policy
makers, researchers, business community and other interested
users to analyze the financial structure and performance of the
various sectors in the economy.
Legal Authority
The survey was conducted under
the Statistics Act (Chapter 317), which made the submission of
returns mandatory. The Act also stipulated that the contents of
individual returns received would be kept confidential and used
only for statistical purposes.
Scope and Coverage
The survey covered companies
incorporated or registered in Singapore, including branches of
foreign companies. Partnerships and sole proprietorships are not
included because of the difficulty in obtaining information on
paid-up capital and reserves for such business enterprises.
Sample Selection
The sampling frame was based on
the list of ‘live’ establishments obtained from the Department’s
Commercial Establishment Information System (CEIS). Information
in the CEIS is regularly updated through simple postal surveys
of newly registered companies, businesses and societies, and
through extracting relevant information from administrative and
other sources such as the Accounting and Corporate Regulatory
Authority, newspaper advertisements, Registry of Societies,
various business and trade associations and business and
telephone directories.
The sampling method for the
survey was based on stratified sampling. All establishments in
the sampling frame were stratified by company asset size,
country of major investor and economic activity. Establishments
with large asset were selected with certainty from stratum with
predetermined asset value (take-all stratum). For the remaining
smaller establishments, samples were then drawn from each
stratum (take-some stratum).
TECHNICAL NOTE Singapore’s Corporate Sector
The following categories of
companies were however covered with certainty:
(a) branches of foreign
companies; and
(b) financial institutions.
The sample size was optimized
with an appropriate cut-off value based on the required
precision expected from the overall sample. This would ensure an
optimal sample size so as to achieve a desired accuracy of the
survey results.
Methodology
Data Collection
For companies which had
up-to-date accounts posted on their web sites (mostly public
listed companies) or filed with the Accounting and Corporate
Regulatory Authority (ACRA), the data were extracted from those
accounts. Letters of requisition were sent to the remaining
companies requesting them to provide their company financial
accounts.
Reminder letters were sent to
those companies which failed to respond without reasonable
explanations. A second reminder was sent to companies which did
not respond to the first reminder. Queries or clarification with
respondents on omissions and inconsistencies were conducted
through telephone or correspondence.
Relevant data were extracted from
both the balance sheet and income statement of the financial
accounts of surveyed companies. For accounts which are compiled
using another currency denomination, they are converted to
Singapore dollars.
Data Processing
The Department processed the
company financial accounts and completed survey returns received
via mail or fax using the conventional data entry method. All
data of completed returns were manually scrutinised and edited
before they were coded and processed by computer. The manually
edited data were entered via networked personal computers to a
data server for processing. The data were then computer-edited
for code validity, completeness and consistency in order to
detect the less obvious errors and inconsistencies that had
escaped manual detection or had occurred during the data entry
phase. The erroneous data were amended and re-processed.
Tabulation was carried out only after all records had passed the
computer editing.
Enumeration Unit
The enumeration or reporting unit
used in the survey was the "company" as defined under the
Singapore Companies Act. Branches of foreign companies which
were registered under the Companies Act were also included.
Every company was treated as a distinct and separate entity from
its subsidiaries and only its own accounts were analyzed. For
companies which had set up branches, the consolidated accounts
of the company and its branches were used.
Year of Reference
The period of reference was the
calendar year. However, for establishments whose accounting year
differed from the calendar year, they were asked to report
according to the accounting or financial year covering the major
part of the calendar year.
Type of Business Activity
Type of business activity
referred to the principal and secondary activities. The
principal activity was defined as the one in which the
establishment devoted most of its resources or from which it
derived most of its income. Secondary activities were those
incidental or ancillary to the principal activity. The
classification of the type of activity of the establishment was
based on its principal activity and was in accordance with the
"Singapore Standard Industrial Classification, 2000".
Definition of Terms
Local-controlled Companies
These are companies with at least
50 per cent of their ordinary paid-up shares owned by
shareholders whose residential or registered address is in
Singapore.
Foreign-controlled Companies
These are companies with more
than 50 per cent of their ordinary paid-up shares owned by
shareholders whose residential or registered address is outside
Singapore. They include branches of foreign corporations as well
as subsidiaries of foreign-controlled companies.
Assets
This refers to items that are
of value which are owned or being owed to the company. Examples
include fixed assets (e.g. buildings and equipment), investment
in subsidiaries, portfolio investment, cash deposits and trade
credits due from debtors.
Shareholders’ Equity
The paid-up share capital as well
as the reserves of a company are classified as shareholders’
equity. Paid-up capital is the amount contributed by
shareholders to the company and reserves refer to the company's
retained surpluses, revaluation gains, share premiums and other
reserve funds earmarked for contingencies, improvements, etc.
The amount is recorded in Singapore dollars at nominal or book
values.
Liabilities
Liabilities are amounts due
to parties external to the company. Examples include loans, bank
overdraft and trade credits due to creditors.
The relationship between assets,
shareholders’ equity and liabilities can be expressed as
follows:
Assets = Shareholders’ Equity +
Liabilities
Total Equity
For Singapore branches of foreign
banks, the value of the net fixed assets of a branch is used as
an approximation of the amount of foreign capital invested in
Singapore. For branches of other kinds of foreign corporations,
the net amount owing to the head office is used.
Total equity comprises the amount
of shareholders’ equity as well as net fixed assets (for
branches of foreign banks) and net amount due to head office
(for other branches of foreign corporations).
Equity Ratio
The equity ratio is defined as:
( Shareholders’ equity + net
amount due to overseas head offices ) DIVIDED BY Total assets
This ratio measures the
dependence of companies on external funding, i.e. funding which
is not from its shareholders or its overseas headquarters in the
case of local branch of a foreign enterprise. The lower the
ratio, the higher is the company’s dependence on external
funding.
Current Ratio
The current ratio is defined as:
Current assets + amount due from
holding and related companies DIVIDED BY Current liabilities +
amount due to holding and related companies
This ratio measures the liquidity
of companies, i.e. their ability to meet current debt payments
when due. Outstanding balances in inter-company accounts with
holding and other related companies (but not accounts
outstanding with overseas head offices which are considered
long-term and more akin to equity liabilities) are included as
current assets and liabilities in the calculation to obtain a
comprehensive measure of companies’ liquidity. A ratio of 1
indicates that the company has exactly balanced its current
liabilities with current assets. The further the ratio below 1,
the higher is the risk of the company running into a liquidity
problem. A ratio above 1 indicates an excess of liquidity in the
company.
Rate of Return on Total Assets (ROA)
The rate of return on total
assets is defined as
Pre-tax profits before deducting
interest payments in the year DIVIDED BY Average of total assets
at the beginning and end of the year
This ratio measures the
efficiency of companies in their use of resources that are
available to them. Interest payments are not deducted from
earnings as they are the cost of financing business capital
rather than an operating cost. The resulting ratio measures the
earning capacity of the companies’ assets regardless of how the
assets were financed.
Rate of Return on Total Equity
(ROE)
The rate of return on total
equity is defined as
Pre-tax net profits in the year
DIVIDED BY Average of total equity at the beginning and end of
the year
This ratio measures companies’
profitability, i.e. the rate of return that companies have
earned on the capital provided by the shareholders after
accounting for payments to all other providers of capital.
Both the ROA and ROE are computed
on a pre-tax basis as they provide a better measure of
companies’ intrinsic efficiency and profitability. It
neutralizes the tax impact, which could be different for
different companies (e.g. certain companies may enjoy tax
holidays not enjoyed by their counterparts in the same business
activity).
Financial Leverage Ratio (FLR)
The financial leverage ratio is
defined as
Average total assets at the
beginning and end of the year DIVIDED BY Average total equity at
the beginning and end of the year
This ratio measures the
proportion of total assets over total equity. In other words, it
is referring to the company’s capital structure, which is
determined by the company’s access to capital from related
companies and/or the international capital market.
1
The definitions and formulae for Equity Ratio, Return on Asset (ROA)
and Return on Equity (ROE) can be found in the Technical Note.
Source:
Singapore Government News
Release 23 Dec 2004
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Previous FrontPage Edition 28 Dec 2004
