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1 Important Number That Investors Should Know About Roxy-Pacific Holdings Ltd

Roxy-Pacific Holdings Ltd (SGX: E8Z) is a small company in Singapore’s stock market that is involved in the real estate business. At its current share price, the company has a market capitalisation of just below S$520 million.

Between 2004 and 2015, Roxy-Pacific had developed and launched 39 small-to-medium sized developments in Singapore. These developments consist of over 3,400 residential and commercial units. The company also has a portfolio of commercial real estate and hotels in Singapore, Australia, and Japan.

In the last five years, Roxy-Pacific’s share price has climbed by 109% whereas Singapore’s stock market benchmark, the Straits Times Index (SGX: STI), has remained almost unchanged during that period.

In here, I want to look at Roxy-Pacific’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 Roxy-Pacific’s ROIC looks like in the table below (I had used numbers from the company’s last completed fiscal year):

roxy-pacific-roic-table
Source: Company’s filing

We can see that the ROIC for Roxy-Pacific is 24%. This means that for every dollar of capital invested in the business, the company earns 24 cents in profit. I’ve studied the ROICs of many companies in Singapore’s market and Roxy-Pacific’s ROIC appears to be above average.

Nevertheless, investors should note that the company had a significant amount of short-term debt on its balance sheet (S$484.9 million at end-2015). This is excluded from the calculation of Roxy-Pacific’s tangible non-current asset in the table above. If the short-term debt is included, the company’s ROIC will fall significantly to just 11.3%, which is below average.

But in any case, it’s worth pointing out that Roxy-Pacific’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.