1 Important Number that Investors Should Know About Jumbo Group Ltd

JUMBO Group Ltd (SGX: 42R) is a food and beverage (F&B) company that was listed slightly over a year ago.

The company is perhaps most well known for the chili crab dish that is served in its JUMBO Seafood restaurants. JUMBO Group also has many other F&B brands under its banner such as Ng Ah Sio Bak Kut Teh, Chui Huay Lim Teochew Cuisine, and J Pot, among others.

Over the last 12 months, JUMBO Group’s share price has climbed by 60.5% whereas Singapore’s market barometer, the Straits Times Index (SGX: STI), has remained essentially unchanged.

In here, I want to look at JUMBO Group’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:

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 while the reverse is true – a low ROIC is often associated with a low-quality business.

You can see how JUMBO Group’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 the ROIC for JUMBO Group is 226%. This means that for every S$1 of capital invested in the business, the company earns S$2.26 in profit. I have studied the ROICs of many other Singapore-listed companies and JUMBO Group’s ROIC appears to be above average.

One of the reasons for the company’s high ROIC is due to its heavy use of operating leases. The liabilities associated with the leases are generally not reflected in the balance sheet of JUMBO Group.

In any case, investors should monitor the ROIC of a company over a period of time to get a better understanding of how sustainable the metric is.

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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.