A Look At StarHub And SATS From The Bottom Up

In a previous article, I had explained how the return on invested capital (ROIC) metric can be used to help evaluate the quality of a business. For convenience, the math needed to calculate the ROIC is given below:

ROIC table

Generally speaking, a high ROIC will mean a high-quality business while a low ROIC will point to a business of low quality. The idea is that a business with a higher ROIC requires less capital from its shareholders to generate a profit, and it thus gives shareholders a higher return per dollar that is invested in the business.

This is important for investors as a stock’s price performance over the long-term is often tied to the performance of its underlying business.

With this in mind, I wanted to look at SATS Ltd (SGX: S58) and StarHub Ltd (SGX: CC3) and see how their ROICs compare. Both companies are a part of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

Here’s how their ROICs stack up (I’m using only numbers from their last completed fiscal years):

StarHub and SATS ROIC table
Source: S&P Global Market Intelligence

Both companies have high ROICs as shown in the table. But the ROIC is only one of many financial ratios that intrepid investors need to consider.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.