1 Important Number that Investors Should Know About Venture Corporation Ltd

Source: Fool Editorial

Venture Corporation Ltd (SGX: V03) is an electronics manufacturing services provider with expertise in a wide range of activities, such as printing and imaging, networking and communications, retail store solutions and industrial, medical and life sciences, and more.

According to Yahoo Finance, Venture’s stock price has done reasonably well over the past five years, gaining 35% in all. For perspective, Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI), has inched up by just 4.8% over the same period.

In here, I want to study the return on invested capital (ROIC) of Venture. In a previous article, I had explained how the ROIC metric can be used to evaluate the quality of a business. Here’s the math needed to calculate a company’s ROIC:

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. High-quality businesses tend to have high ROICs and the reverse is true – low ROICs are often associated with low-quality businesses.

The following table shows the ROIC for Venture (I used numbers from the company’s last completed fiscal year):

Source: S&P Global Market Intelligence

Venture has a ROIC of 21.9%, which means that it generates $0.219 in profit for each dollar of capital invested in the business.

One point that investors should pay attention to here is the fact that Venture has significant intangible assets and goodwill of S$661 million. If these assets are included, the company’s ROIC will only be 12.5%.

Venture’s ROIC can provide useful insight. But it can become even more meaningful if we compare it against its own history and against the company’s 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.