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1 Important Number Investors Should Know About Singapore O&G Ltd

Singapore O&G Ltd (SGX: 41X) is a healthcare services provider that was listed in June 2015. It has three main operating business segments at the moment, namely, Obstetrics and Gynaecology, Cancer-related, and Dermatology; its fourth arm focusing on paediatrics was set up just earlier this month.

Since the close of its trading debut, Singapore O&G’s stock price has increased by 123%. This strong stock market performance drove me to study the business closer. In here, I want to share the company’s return on invested capital (ROIC).

An overview of the ROIC

The ROIC is a metric that can help investors gauge 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. 

Singapore O&G’s ROIC

The following table shows the ROIC for Singapore O&G in 2016:

Singapore O&G ROIC
Source: Singapore O&G 2016 annual report

We can see that Singapore O&G has an unusual ROIC – a negative number. This is not due to lousy profits from the company, but instead, a negative figure for its tangible capital employed.

Thing is, Singapore O&G has a significant amount of goodwill on its balance sheet. As of 31 December 2016, the healthcare services provider has S$26.9 million in goodwill. If this is included as part of the capital employed, the company’s ROIC would become 43.2%, which is still pretty high. This suggests that the company has a high quality 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.