1 Important Number Investors Should Know About SIA Engineering Company Ltd

SIA Engineering Company Ltd (SGX: S59), or SIAEC for short, is a company that specialises in providing aircraft maintenance, repair, and overhaul (MRO) services. It counts over 80 international airlines as its customers.

Over the past decade, SIAEC has consistently paid an annual dividend. Moreover, the company’s ordinary dividend has stepped up from S$0.10 per share in fiscal 2006 (fiscal year ended 31 March 2006) to S$0.14 per share in fiscal 2016.

In here, I want to take a look at SIAEC’s return on invested capital (ROIC). I had explained in a previous article how the ROIC metric can be used as a gauge for the quality of a business. The formula for 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. High-quality businesses tend to have high ROICs will the reverse is true – a low ROIC is often associated with a low-quality business.

So how does SIAEC’s ROIC look like? You can see it in the table below (I’ve used numbers from the trust’s last completed fiscal year):

Source: S&P Global Market Intelligence

We can see that SIAEC has a ROIC of 16.5%, which means that for every $1 of capital invested in the business, the company earns 16.5 cents in profit.

One point that investors should pay attention to here is that SIAEC derives a significant amount of profit from its various associates and joint ventures and these were excluded from the ROIC calculation. Thus, it may be useful to consider the return from those investments – together with the asset values of those investments (which are again excluded from the ROIC calculation) – separately.

Another thing to note is that SIAEC’s ROIC of 16.5% is above average.

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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.