Science Applications Int'l Corp (SAIC)

[DMOST]

Should You Like Science Applications International Corporation’s (NYSE:SAIC) High Return On Capital Employed?

Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!

Today we’ll evaluate Science Applications International Corporation (NYSE:SAIC) to determine whether it could have potential as an investment idea. To be precise, we’ll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.

First up, we’ll look at what ROCE is and how we calculate it. Then we’ll compare its ROCE to similar companies. Then we’ll determine how its current liabilities are affecting its ROCE.
Return On Capital Employed (ROCE): What is it?

ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Generally speaking a higher ROCE is better. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since ‘No two businesses are exactly alike.’
So, How Do We Calculate ROCE?

The formula for calculating the return on capital employed is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

Or for Science Applications International:

0.20 = US$269m ÷ (US$2.2b – US$682m) (Based on the trailing twelve months to November 2018.)

Therefore, Science Applications International has an ROCE of 20%.

View our latest analysis for Science Applications International
Does Science Applications International Have A Good ROCE?

ROCE is commonly used for comparing the performance of similar businesses. Using our data, we find that Science Applications International’s ROCE is meaningfully better than the 10% average in the IT industry. I think that’s good to see, since it implies the company is better than other companies at making the most of its capital. Regardless of where Science Applications International sits next to its industry, its ROCE in absolute terms appears satisfactory, and this company could be worth a closer look.
NYSE:SAIC Past Revenue and Net Income, February 22nd 2019
NYSE:SAIC Past Revenue and Net Income, February 22nd 2019

When considering ROCE, bear in mind that it reflects the past and does not necessarily predict the future. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is only a point-in-time measure. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for Science Applications International.
How Science Applications International’s Current Liabilities Impact Its ROCE

Liabilities, such as supplier bills and bank overdrafts, are referred to as current liabilities if they need to be paid within 12 months. The ROCE equation subtracts current liabilities from capital employed, so a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To counteract this, we check if a company has high current liabilities, relative to its total assets.

Science Applications International has total assets of US$2.2b and current liabilities of US$682m. As a result, its current liabilities are equal to approximately 31% of its total assets. Science Applications International has a medium level of current liabilities, which would boost the ROCE.
The Bottom Line On Science Applications International’s ROCE

While its ROCE looks good, it’s worth remembering that the current liabilities are making the business look better. Of course you might be able to find a better stock than Science Applications International. So you may wish to see this free collection of other companies that have grown earnings strongly.
https://finance.yahoo.com/news/science-applications-international-corporation-nyse-113521113.html

GO SAIC

"PEACE"