Genting Singapore Ltd (SGX: G13) is the operator of the integrated resort, Resorts World Sentosa. Among the resort’s many attractions are one of Singapore’s two casinos and the Universal Studios Singapore theme park
After touching 2018’s peak in January, Genting Singapore’s shares down by about 30% to S$0.98 each at the time of writing. This captured my attention and got me interested in finding out more about the company. In particular, I wanted to understand: does it have a high-quality business?
This question is important. If Genting Singapore business is of high-quality, its current low share price could be an investment opportunity. Unfortunately, there’s no easy answer to the question. But, a simple metric can help shed some light on the question: the return on invested capital (ROIC).
A brief introduction to the ROIC
In a previous article of mine, I 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.
You can see how the math works for the ROIC in the formula above.
Genting Singapore’s ROIC
The table below shows how Genting Singapore’s ROIC looks like. I had used numbers from its fiscal year ended 31 December 2017 (FY2017).
Source: Genting Singapore’s Annual Report
In FY2017, Genting Singapore generated a ROIC of 18.9%. This means that for every dollar of capital invested in the business, Genting Singapore earned 18.9 cents in profit. The company’s ROIC of 18.9% is above average, based on the ROICs of many other companies I have studied in the past. This could suggest that Genting Singapore 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.