An Important Investing Metric For This Stock That’s Up 130% In 1 Year

Japfa Ltd (SGX: UD2) is an industrial agri-food company that listed in 2014.

The company has three main business segments, namely, Animal Protein, Dairy, and Consumer Food. Right now, the company employs over 30,000 people across its integrated network of modern farming, processing, and distribution facilities in Indonesia, China, Vietnam, India and Myanmar.

Japfa may be a company that would have caught some investors’ eyes: It is one of the best performing stocks in the Singapore market over the last 12 months. From 14 October 2015 to yesterday, Japfa’s share price has increased by an impressive 130%.

Given the company’s strong stock price return, I thought it could be interesting to look at Japfa’s return on invested capital (ROIC).

In an earlier article, I had explained how the ROIC 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 Japfa (I used numbers from the company’s last completed fiscal year):

Source: S&P Global Market Intelligence

Here, we can see that Japfa has a ROIC of 15%, which means that for every S$1 dollar of capital invested in the business, the company earns 15 cents in operating profit.

While the following’s not entirely an apples-to-apples comparison, the median ROIC for companies in the US stock market from 1963 to 2004 has averaged at 10%. This gives us perspective on the level of Japfa’s ROIC.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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.