Is your money working hard enough?

The basis of successful investing is to make your money work for you. Phil Oakley explains how to find the best companies to help you achieve that.

The point of investing is to get the best returns possible on your money. So it makes sense to buy companies that make high returns on the money they invest themselves those who make a decent Return on Capital Employed' (ROCE) as long as you don't have to pay too much for the shares.

So how do you calculate ROCE? This is where the balance sheet comes in. On one side, a balance sheet shows what a company owns (its assets). On the other, it shows what it owes to others (its liabilities), plus the equity' invested by shareholders. The two always balance hence the name.

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Swipe to scroll horizontally
Total assets£3,202.6m
Less cash-£31m
Less NIBCL-£304.3m
Capital employed£2,867.3m
Swipe to scroll horizontally
Capital employed (A)£118m£114m£131m£219m£258m
Sales (B)£320m£354m£381m£448m£512m
Operating profit (C)£76m£92m£99m£116m£132m
Profit margin (D)23.7%26.1%26.1%25.9%25.8%
Capital turnover E =(B/A)£2.71£3.10£2.90£2.04£1.98
ROCE (DxE)64.3%80.7%75.9%52.9%51.1%
End of year figures used for capital employed

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.