Over the past decade, ROA was generally between 3 to 5 per cent except in 2000 when it reached 5.8 per cent. Most sectors enjoyed an improvement in operating efficiency in 2003, particularly in manufacturing and transport & communications. ROA in manufacturing rose from 7.0 per cent in 2002 to 9.7 per cent in 2003, while ROA in transport & communications increased from 4.8 per cent to 7.8 per cent during the same period.

ROA of companies in financial services also edged up slightly from 3.0 per cent to 3.3 per cent. Among the sectors, the companies in manufacturing registered the highest ROA of 9.7 per cent. (Chart 6)

The improved operating efficiency in the corporate sector was mainly due to the improvement in efficiency among local-controlled companies. ROA of local-controlled companies rose from 2.6 per cent to 4.1 per cent in 2003 while that of their foreign-controlled counterparts remained unchanged at 3.9 per cent. (Table 4)

Despite the improvement in operational efficiency among local-controlled companies across major sectors, they continued to lag behind their foreigncontrolled counterparts in most major sectors, except financial services and real estate & business services.

The rate of return on total equity1 (ROE) measures the profitability of shareholders’ investment in the companies. Overall the corporate sector was more profitable in 2003 compared to 2002, as ROE improved from 7.9 per cent to 11.4 per cent (Chart 7). Generally, the profitability of the corporate sector was closely linked to economic performance.

Most sectors experienced higher profitability in 2003. ROE in financial services increased to 11.0 per cent in 2003 from 7.3 per cent a year ago while return in manufacturing rose from 12.1 per cent to 17.2 per cent during the same period.

Transport & communications, insurance services and real estate & business services were other sectors which enjoyed improved profitability in 2003. ROE in commerce sector moderated from 12.5 per cent in 2002 to 11.9 per cent in 2003. Insurance services registered the highest ROE of 28.9 per cent. (Chart 8)

Although ROE of local-controlled companies doubled from 4.6 per cent to 9.3 per cent in 2003, it continued to lag behind that registered by foreign-controlled enterprises (14.5 per cent). Foreign-controlled companies reported higher ROE than their local-controlled counterparts in nearly all the major sectors except in the financial sector where local-controlled companies registered better return (11.4 per cent) than foreign-controlled ones (10.1 per cent). (Table 5)

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.

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.

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.

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 systematic 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 pre-determined asset value (take-all stratum). From the remaining smaller establishments, firms were selected systematically in each stratum (take-some stratum).

The sample size was optimized with an appropriate cut-off value (i.e. the value that delineates the boundary of the take-all and take-some strata) based on the required precision expected from the overall sample. This would ensure an optimal sample size so as to achieve a reasonable accuracy of the survey results.

The following categories of companies were however covered:

(a) branches of foreign companies; and

(b) financial institutions.

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.

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.

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.

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 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”.

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.

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.

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.

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 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

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).

The equity ratio is defined as:

( Shareholders’ equity + net amount due to overseas head offices ) ÷ Total assets

This ratio measures the dependence of companies on external funding, i.e. funding not from their shareholders or their overseas headquarters (for local branches of a foreign enterprises). The lower the ratio, the higher is the company’s dependence on external funding.

The current ratio is defined as:

Current assets + amount due from holding and related companies ÷ 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 intercompany 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.

The rate of return on total assets is defined as Pre-tax profits before deducting interest payments in the year ÷ Average of total assets at the beginning and end of the year

This ratio measures the efficiency of companies in their use of assets to generate an operating surplus. 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.

The rate of return on total equity is defined as Pre-tax net profits in the year ÷ 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).

The financial leverage ratio is defined as

Average total assets at the beginning and end of the year ÷ 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.