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1 Important Number That Investors Should Know About Wilmar International Limited

Wilmar International Limited (SGX: F34) is one of the largest oil palm plantation companies in the world.

But that’s not the only hallmark of its scale – Wilmar is also one of the largest Singapore-listed companies by market capitalisation. Given its size, the company is one of the 30 stocks that make up the Straits Times Index (SGX: STI).

Wilmar’s business activities include oil palm cultivation, oilseed crushing, edible oils refining, sugar milling and refining, and the manufacture of specialty fats, oleochemicals, biodiesel and fertilisers. It also has a hand in flour and rice milling. Wilmar ended the second-quarter of 2016 with a total planted area of 239,775 hectares.

So yes, we now know that Wilmar is a large company with varied business interests in the agriculture industry. Let’s turn our attention now to an important financial metric that can shed some light on the quality of its business – the return on invested capital (ROIC).

But before I dig deeper into the ROIC, we should also bear in mind that many other factors (such as a company’s market share, growth potential, and profit margins etc.) can also help provide insight on the quality of a business.

A brief recap of the ROIC

In a previous article, I had explained how the ROIC can be used to evaluate the quality of a business. For convenience, the math needed to calculate the ROIC is given below:

ROIC table

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.

As such, a high ROIC will generally be found in a high-quality business while a low ROIC will point to a business of low quality.

Wilmar’s performance

The table below showcases Wilmar’s ROIC using the financials of its last completed fiscal year (that would be 2015):

Wilmar's ROIC table
Source: S&P Global Market Intelligence

We can see that Wilmar has a ROIC of 13.1%, which means that for every S$1 dollar of capital invested in the business, Wilmar earned 13.1 cents.

It’s worth noting that the 13.1% figure alone does not tell the whole story about the quality of Wilmar’s business. For the number to become even more meaningful, we should compare it to the company’s performance in prior years or to the ROICs generated by competitors.

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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.