1 Important Number Investors Should Know About CapitaLand Limited

CapitaLand Limited (SGX: C31) is a real estate developer and owner and also happens to be one of the largest companies in Singapore’s stock market with its market capitalisation of nearly S$13 billion.

The company’s real estate portfolio includes integrated developments, shopping malls, serviced residences, offices, and homes.

Investors in the company, or potential investors who are interested, may want to know whether CapitaLand is a good business. To help shed some light on the question, we can turn to a metric known as the return on invested capital (ROIC).

A brief introduction of the ROIC

In a previous article, I had explained how the ROIC can be used to gauge 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.

CapitaLand’s ROIC

You can see how CapitaLand’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 CapitaLand is 7%. For every dollar of capital invested in the business, the company earns 7 cents in profit. This 7% ROIC for CapitaLand appears to be below-average based on the many companies I have studied in the past, but it is not inconsistent with its peers within the real estate industry.

One other thing that investors should pay attention to in the above analysis is that it does not include the share of results from CapitaLand’s associates and other joint ventures. But, both are actually pretty significant within CapitaLand’s business model. It will therefore provide another useful perspective if investors were to include those investments in their analysis.

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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.