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

In a previous article, I had explained how the return on invested capital (ROIC) metric can be used to estimate the quality of a business.

Generally speaking, a high ROIC will mean a high-quality business while a low ROIC will point to a business of low quality. For convenience, the math needed to calculate the ROIC is given below:

ROIC table

The idea behind the ROIC is simple: 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.

These are important for investors to note as a stock’s price 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 Comfortdelgro Corporation Ltd (SGX: C52) and Riverstone Holdings Limited (SGX: AP4). The two are very different businesses –Comfortdelgro provides land transport services while Riverstone is a rubber gloves manufacturer.

But, a comparison of the ROICs from companies in different industries can still be useful because it can give us clues on the economic characteristics of the industries in question.

So, this is how Comfortdelgro and Riverstone stack up (I’m using only numbers from their last completed fiscal years):

Comfortdelgro and Riverstone ROIC table
Source: S&P Global Market Intelligence

Here, we can see that Riverstone’s ROIC of 37.2% is nearly twice that of Comfortdelgro’s17.3%. But, it should be noted that the ROIC is only one of many important financial figures that enterprising 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.