1 Important Number Investors Should Know About Best World International Limited

Best World International Limited (SGX: 5ER) is a direct-selling company that deals with a wide range of healthcare-related products. The firm currently has operations in 12 markets in Asia and was awarded a license for direct selling in China in November.

The biggest geographical source of revenue for Best World International would be Taiwan, which accounted for over 59.6% of total revenue in the first nine months of 2016. China came in second at 30.2%.

Best World captured my attention recently due to its market-beating performance in the last 12 months: Its stock has gained some 334%, whereas the Straits Times Index (SGX: ^STI) was essentially flat.

In here, I want to look at Best World’s return on invested capital (ROIC).

For those of you who are new to the metric, the next section offers a quick introduction. For those who are already familiar, you can skip the following section.

A brief recap of the ROIC

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

Best World’s ROIC

The table below shows how Best World’s ROIC looks like (I had used numbers from the company’s last completed fiscal year):

Source: Best World 2015 annual report

We can see that the ROIC for Best World is 169.8%. This means that for every dollar of capital invested in the business, the company earns S$1.70 in profit. This ROIC for Best World is on the higher end for the ROICs I have calculated for many different companies in the past.

One reason that could explain such a high ROIC for Best World is the company’s high reliance on human capital (that would be its product distributors) which requires little or no capital investment on the part of the company. Yet, direct sales companies sometimes have less control over its distributors as compared to its own staff – so, the company’s reliance on distributors could be both an advantage as well as disadvantage.

In any case, it’s worth noting that there are many aspects of a company beyond its ROIC that investors should study before making an investing decision. So, consider this study of Best World’s ROIC as a starting point for further research.

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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.