ROIC - APOLLO vs LONBISC

I have performed ROE DuPont Analysis on APOLLO vs LONBISC and  make a conclusion that APOLLO is much more efficient than LONBISC as APOLLO have a higher ROE for the pass 5 year which achieved by higher net profit margin, higher asset turnover and low financial leverage.

However, there are some pitfalls of using ROE for measurement as ROE can be increased with debt. And, some might argue that not all of the assets hold by company was contribute to the return. Owing to this, it is good to perform another analysis to evaluate my previous conclusion. On this article, I will perform Retrun on Invested Capital (ROIC) analysis on APOLLO and LONBISC.  ROIC would tell the investor the return of a firm was generated by how much capital (include debt). 

You can refer to the end of this article or the detail calculations. And, the caculcation reveal that

1. APPOLO generated 42,449 of Operating Income from a Invested Capital of 165,900 while LONBISC only able to generate a operating income of 31,004 eventhough LONBISC invested 595,040 on its capital.
2. APPOLO's invested capital grew just by about 60% (from 105,187 to 165,900) while LONBISC's invested capital grew substantially from 203,606 to 595,040 (a 192% growth rate)
3. APOLLO able to achieve ROIC of 19.34% but LONBISC only able to achieve a 4.18% ROIC. And, this is in line with the ROE comparison - 13.94% vs 4.15%
4. APPOLO's ROIC is about twice of its WACC (10%) while LONBISC ROIC is lesser than its WACC of 8.77%. We need to bear in mind that A company creates value only if its ROIC is higher than itsWACC.
5. APOLLO's ROIC is on downtred from year 2006 (19.74%) to year 2011 (11.57%) but it has recovered to 19.34% on year 2013. LONBISC's ROIC was dropped from 9.26% (year 2006) to 4.81% (year 2013) and there is no sign of recover. And, LONBISC's ROIC is lower than its WACC most of the time. This show that LONBISC not able to create value to it's shareholder since year 2006.

APOLLO

ROIC = NOPAT / Invested Capital = EBIT * (1- Tax Rate)/ Invested Capital

Invested Capital = Core Business Asset + Net Working Capital

	2013	2012	2011	2010	2009	2008	2007	2006
Operating Income	42,449	28,593	22,578	32,249	25,442	24,363	30,105	26,365
NOPAT	32,083	21,741	17,855	24,678	20,918	20,973	24,554	20,761
Trade Account Receivables	36,731	26,222	23,152	20,473	21,296	31,643	21,496	21,202
Other receivables	0	2,643	1,058	1,846	909	6,889	4,867	1,626
Inventories	19,894	17,221	18,867	14,570	12,209	11,529	11,611	11,239
Non-cash Working Capital	56,625	46,086	43,077	36,889	34,414	50,061	37,974	34,067
Trade Account Payable	7,120	3,703	4,291	3,145	1,742	3,639	2,827	2,489
Other payables and accruals	85	3,595	3,539	3,218	3,954	5,635	5,272	3,022
Net Working Capital	49,420	38,788	35,247	30,526	28,718	40,787	29,875	28,556
Property, plant and equipment	115,365	118,105	116,474	98,973	91,195	83,828	79,316	76,631
Prepaid land lease payments	1,115	2,400	2,564	11,649	9,166	9,375	8,882	0
Core Business Asset	116,480	120,505	119,038	110,622	100,361	93,203	88,198	76,631
Invested Capital	165,900	159,293	154,285	141,148	129,079	133,990	118,073	105,187
ROIC	19.34%	13.65%	11.57%	17.48%	16.21%	15.65%	20.80%	19.74%

 

WACC for APOLLO

Share Price	4.86
NOSH	80,000
Market Cap, E	388,800
Total Debt, D	0
Re	10%
Rd	0.00%
Tax Rate	24.42%
V=E+D	388,800
WACC=E/V*Re+D/V*Rd(1-tax)	10.00%

LONBISC

	2013	2012	2011	2010	2009	2008	2007	2006
Operating Income	31,004	28,647	30,392	23,649	25,412	18,046	24,473	24,877
NOPAT	24,882	27,730	28,335	24,282	24,704	20,477	19,850	19,596
Trade Account Receivables	78,174	58,687	45,439	33,531	22,772	15,905	13,679	21,026
Other receivables	13,340	15,198	42,499	20,935	23,223	22,613	28,926	16,206
Inventories	29,114	26,814	33,868	31,563	33,056	18,029	17,315	16,753
Non-cash Working Capital	120,628	100,699	121,806	86,029	79,051	56,547	59,920	53,985
Trade Account Payable	43,014	38,593	48,417	50,177	29,154	22,534	15,631	12,832
Other payables and accruals	0	0	0	0	0	0	0	0
Net Working Capital	77,614	62,106	73,389	35,852	49,897	34,013	44,289	41,153
Property, plant and equipment	517,426	477,402	361,399	348,818	314,627	227,617	190,887	162,453
Prepaid land lease payments	0	0	0	0	0	0	0	0
Core Business Asset	517,426	477,402	361,399	348,818	314,627	227,617	190,887	162,453
Invested Capital (5)	595,040	539,508	434,788	384,670	364,524	261,630	235,176	203,606
ROIC (5)	4.18%	5.14%	6.52%	6.31%	6.78%	7.83%	8.44%	9.62%

 

WACC for LONBISC

Share Price	0.83
NOSH	142,224
Market Cap, E	118,046
Total Debt, D	263,076
Re	20%
Rd	4.64%
Tax Rate	19.75%
V=E+D	381,122
WACC=E/V*Re+D/V*Rd(1-tax)	8.77%

 

References:-

• Return in Invested Capital (ROIC)