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Telechoice International Ltd Is Now Close To A 52-Week Low: Does It Have A Good Business?

Telechoice International Ltd (SGX: T41) is a company that provides info-communications products and services. It has been trading close to a 52-week low in recent times, a situation which captured my attention.

As part of my study of Telechoice International, I want to find out if it has a high or low quality business. It’s not an easy question to answer, but we can get some clues from 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.

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

Telechoice International’s ROIC

The table below shows the ROIC for Telechoice International in 2016:


Source: Telechoice International 2016 annual report

We can see that Telechoice International has a high ROIC of 54.6%. In fact, 54.6% is higher than average, based on the ROICs of many other companies I have looked at in the past.

The main reason for the company earning its high ROIC is due to the high level of trade payables on its balance sheet. In 2016, current trade payables was S$75.6 million, which covers the majority of Telechoice International’s non-cash current assets of S$99.7 million.

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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.