1 Important Number Investors Should Know About IHH Healthcare Bhd

IHH Healthcare Bhd (SGX: Q0F) is an international provider of premium healthcare services in Asia, Central & Eastern Europe, the Middle East, and North Africa.

It is listed in both Singapore and Malaysia and is one of the largest private healthcare companies in both countries’ stock markets. In Singapore, some of the hospitals under its portfolio include Mount Elizabeth and Gleneagles Singapore.

Since its listing in Singapore’s stock market in July 2012, IHH Healthcare’s stock price has appreciated by 71%. Over the same period, the Straits Times Index (SGX: STI) has declined by 7%.

In here, I want to look at IHH Healthcare’s return on invested capital (ROIC). In a previous article, I had explained how the ROIC metric can be used as a gauge for the quality of a business. For convenience, the math needed to calculate the ROIC is given below:

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.

You can see how IHH Healthcare’s ROIC looks like in the table below (I had used numbers from the company’s last completed fiscal year):

Source: S&P Global Market Intelligence

We can see that IHH Healthcare has a ROIC of 10.0%. This means that for every dollar of capital invested in the business, IHH earns 10 cents in profit.

While this exercise is useful, investors can also go a step further and look at the trends in IHH Healthcare’s ROIC and/or compare its ROIC with other healthcare companies.

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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.