One Important Number that Investors Should Know About Cogent Holding Limited

Cogent Holdings Limited (SGX: KJ9) is a company that is involved in many aspects of logistics. They include transportation, warehousing, container-depot management, automotive logistics and project cargo.

Apart from its logistics business it also has a property management arm that manages “The Grandstand”, formerly known as Turf City.

Recently, this company captures my attention due to its market-beating performance over the last 5 years, up by around 500% in the last five years.

Given such a strong performance, we may want to know more about the quality of its underlying business.

Though there are many ways to look at quality, we will use a simple metric, namely, the return on invested capital (ROIC).

A brief recap of ROIC

In a previous article, I had explained how to use the return on invested capital (or ROIC) to evaluate the quality of a business. For convenience, the maths needed to calculate the ROIC is given below:

ROIC table

Generally speaking, a high ROIC could mean a high-quality business, while a low ROIC could point to a business of low quality. This is important for investors as a stock’s performance is often tied to the performance of its underlying businessover the long term.

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 on every dollar that is invested in the business. 

So how does Cogent perform in this ROIC test?

$ Million Cogent Holding
Revenue 129.2
Profit before interest and tax 33.7
Operating profit margin 26.1%
Net current asset 8.0
Cash 45.3
Tangible non-current asset 203.1
Tangible capital employed 165.9
ROIC 20.3%

We can see that the ROIC for Cogent is 20.3%. This means that for every $1 of capital invested in the business, the company earns 20.3 cents in profit.

It’s too difficult to arrive at a conclusion based on a single number. Yet, based on the previous articles about the ROIC’s of other companies, Cogent’s ROIC is above average.

Readers who are interested in the company may want to perform the same exercise for the past 5 years. This will help us understand whether the 20.3% ROIC is a sustainable number.

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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.