1 Important Number that Investors Should Know About Sheng Siong Group Ltd

Established in 1985, Sheng Siong Group Ltd (SGX: OV8) has grown over the years into one of the largest supermarket chains in Singapore.

The company, which got listed in 2011, currently has a network of 41 stores that are primarily located in the heartlands of our Garden City. It also has plans to open its first supermarket in China by the end of this year.

I was recently looking at Singapore’s stock market to find companies that have experienced share price gains of 100% or more in the past five years and Sheng Siong happened to be one of them.

In here, I want to look at the company’s return on invested capital (ROIC). I had explained in a previous article how the ROIC metric can be used to estimate the quality of a business. The formula for the ROIC is given below:

ROIC table

The simple premise behind the ROIC is this: 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. High ROICs are often found in high-quality businesses while low ROICs are often seen in low-quality businesses.

So what kind of ROIC has Sheng Siong managed to achieve in its last completed fiscal year? You can see it in the table below:

Sheng Siong ROIC table
Source: S&P Global Market Intelligence

Sheng Siong has managed to achieve a ROIC of nearly 55%. This is higher than a lot of the ROICs that the blue chips in Singapore’s stock market have and is partly due to the company’s negative cash conversion cycle (Sheng Siong receives cash from its customers faster than it pays cash to its suppliers).

This look at Sheng Siong’s ROIC may be useful, but it should be noted that further research beyond this is need before any firm investing decision can be made on the company.

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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.