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A Look At QAF Limited And Comfortdelgro Corporation Ltd From The Bottom Up

In a previous article, I had explained how the return on invested capital (ROIC) metric can be used to evaluate the quality of a business. For the sake of convenience, I’ve shared the formula needed to calculate the ROIC below:

ROIC table

Generally speaking, a high ROIC corresponds to a high-quality business while a low-quality business will have a low ROIC. The simple idea behind the ROIC is that a business with a higher ROIC requires less capital to generate a profit, and it thus gives investors a higher return per dollar that is invested in the business.

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

In here, I’d like to compare the ROICs of QAF Limited (SGX: Q01) and ComfortDelgro Corporation Ltd (SGX: C52). They are two very different businesses – QAF is in food manufacturing whereas Comfortdelgro provides land transport services. But, a comparison of two companies from different industries can still be useful because it can give investors clues on the economic characteristics of the industries.

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

QAF and Comfortdelgro ROIC
Source: S&P Global Market Intelligence

With reference to the table above, we can see that QAF has a marginally higher ROIC of 18.3% when compared to Comfortdelgro’s 17.3%. But, it’s worth noting that the ROIC is only one of many financial figures 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.