Curious About the Quality of Global Logistic Properties Ltd’s Business? Here’s 1 Simple Number To Help

Global Logistic Properties Ltd (SGX: MC0) is an owner and developer of modern logistics facilities. It has operations in four countries, namely, China, Brazil, Japan, and the US. The company’s the largest provider of modern logistics facilities in the first three countries and the second largest in the fourth.

Recently, there have been news that a number of investors are looking to take the company private. The rumours have caused Global Logistic Properties’ share price to rise; over the last three months, the company’s share price has climbed by 48% to S$2.60 currently. At that price the logistics company has a price-to-book ratio of just 1.

Given the takeover talk that’s surrounding Global Logistic Properties at the moment, I thought it would be interesting to take a look at the company’s return on invested capital (ROIC).

A brief recap of the ROIC

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

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.

ROIC table

You can see how the math works for the ROIC in the formula above.

Global Logistic Properties’ ROIC

The table below shows how Global Logistic Properties’ ROIC looks like (I had used figures from the company’s last completed financial year):

Global Logistic Properties ROIC table
Source: Global Logistic Properties’ earnings releases

You can see that the ROIC for Global Logistic Properties is 2.7%. This means that for every dollar of capital invested in the business, the company earns just 2.7 cents in profit. Global Logistic Properties’ ROIC of 2.7% is much lower than average, based on the many companies I have studied in the past.

But there are a few things investors should note about Global Logistic Properties.

Firstly, it has significant investments in associates and joint ventures. It may be useful to evaluate the returns that the company’s getting from them (the ROIC number above excludes the associates and joint ventures).

Secondly, the ROIC figure above also does not include the fair value gains of the logistics properties that the company owns. The number’s significant – some US$720 million in the company’s fiscal year ended 31 March 2016 – so that’s another area to consider as well when studying the quality of Global Logistic Properties’ business.

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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.