An Important Investing Perspective On Straco Corporation Ltd And Singapore Press Holdings Limited

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

Generally speaking, a high (low) ROIC is associated with a high-quality (low-quality) business. That’s because 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 to know as a stock’s price is often driven by the performance of its underlying business over the long-term.

Here’s the math needed to calculate the ROIC:

ROIC table

In here, I want to look at the ROICs of Straco Corporation Ltd (SGX: S85) and Singapore Press Holdings Limited (SGX: T39).

The two companies may seem like an odd pair as they are in completely different types of businesses; Straco owns tourism assets in China and Singapore (it owns the Singapore Flyer here) while Singapore Press Holdings is a newspaper publisher and real estate developer. But, a comparison of the ROICs of companies from different industries can provide us with useful perspectives on the economic characteristics of said industries.

So, here’s how the ROICs of the two companies stack up (I’m using data from their last completed fiscal years):

Straco and SPH ROIC table
Source: S&P Global Market Intelligence

It’s clear that Straco has the much higher ROIC when compared with Singapore Press Holdings. The latter’s ROIC may have been held back by its real estate business, which can be capital intensive. Meanwhile, it must be noted that the ROIC is only one of many financial metrics that 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.