1 Important Number That Investors Should Know About Centurion Corp Ltd

Centurion Corp Ltd (SGX: OU8) is one of Singapore’s largest workers and student accommodation owner-operators.

The company owns, develops, and manages workers accommodation assets in Singapore and Malaysia as well as student accommodation assets in Singapore, Australia, and the United Kingdom.

Centurion’s stock price has fallen pretty hard over the past year – by around 20%. But if we look back over a longer timeframe, Centurion’s stock price has climbed by 91% since 8 December 2011. That’s nearly a double in five years.

In here, I want to look at Centurion’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. Here’s the math needed to calculate the 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 while the reverse is true – a low ROIC is often associated with a low-quality business.

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

Source: Company’s earnings release

We can see that the ROIC for Centurion is 6.8%. This means that for every dollar of capital invested in the business, the company earns 6.8 cents in profit. I have studied the ROICs of many other Singapore-listed companies and Centurion’s ROIC appears to be below average.

But in any case, it’s worth pointing out that Centurion’s ROIC number should not be taken as the final word on its investing merits. Investors should also consider other factors such as the company’s growth prospects and the sustainability of its net profit. After all, using a single metric from a single year to judge the quality of a company is too simplistic.

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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.