MS International (LSE:MSI) has a very strong balance sheet and decent profits history. But what about the relationship between the two? Given the large amount of net assets devoted to the operating business, does it generate a good rate of return on the money invested?
With a Warren Buffett-style investment I expect to hold “forever”. In the long run a share will not generate a good rate of return for the shareholder if the rate of return on assets used within the business is poor.
We are looking for double-figure percentage return at the very least. Preferably high teens or twenties.
Over a long period the rate of return on assets determines the rate of return on shares held.
£’000s Year end April | 2020 | 2019 | 2018 | 2017 | 2016 | ||||||
INCOME STATEMENT | |||||||||||
Profit after tax | -2,491 | 3,812 | 3,386 | 1,498 | 1,584 | ||||||
Amortisation charge this year for accounting goodwill following acquisitions | 271 | 0 | 0 | 0 | 0 | ||||||
Exceptional items distorting profits (positive or negative) | 0 | 1,198 | 0 | 0 | 0 | ||||||
Profit for shareholders | -2,221 | 5,010 | 3,386 | 1,498 | 1,584 | ||||||
CURRENT ASSETS AND LIABILITIES | |||||||||||
Inventories | 15,857 | 12,624 | 11,666 | 10,145 | 7,043 | ||||||
Receivables | 4,589 | 7,044 | 14,617 | 11,393 | 8,996 | ||||||
Cash needed for operations (assumed) | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | ||||||
Other current assets | 1,494 | 1,818 | 1,241 | 1,142 | 902 | ||||||
Payables | -24,679 | -25,375 | -28,052 | -25,464 | -15,253 | ||||||
Short-term debt | 0 | 0 | 0 | -0 | -0 | ||||||
Other current liabilities | -501 | -895 | -643 | -123 | -154 | ||||||
Working capital for operations | -2,240 | -3,784 | -171 | -1,907 | 2,534 | ||||||
Surplus cash (assumed) | 15,125 | 21,886 | 14,866 | 14,210 | 11,758 | ||||||
NON-CURRENT ASSETS AND LIABILITIES | |||||||||||
Property, Plant and Equipment | 20,111 | 20,426 | 20,766 | 19,099 | 15,955 | ||||||
Goodwill in BS | 2,772 | 2,764 | 2,780 | 2,749 | 2,700 | ||||||
Previously written-off acquired goodwill – add back | 271 | 0 | 0 | 0 | 0 | ||||||
Other acquired intangible assets in BS | 0 | 0 | 0 | 0 | 0 | ||||||
Previously written-off other acquired intangibles – add back | 0 | 0 | 0 | 0 | 0 | ||||||
Long-term debt | 0 | 0 | 0 | 0 | 0 | ||||||
Other non-current liabilities | 1,214 | 0 | 0 | 0 | 0 | ||||||
Net non-current assets for operations | 24,368 | 23,190 | 23,546 | 21,848 | 18,655 | ||||||
OTHER ITEMS TO CONSIDER | |||||||||||
Defined benefit pension deficit | 8,586 | 6,802 | 6,421 | 7,485 | 7,644 | ||||||
Internally generated intangible assets capitalised to BS | 1,368 | 1,719 | 2,113 | 2,552 | 2,971 | ||||||
Investments (in shares, bonds, etc.) | 0 | 0 | 0 | 0 | 0 | ||||||
Operating lease non-cancellable commitments | n/a | 921 | 993 | 998 | 1,138 | ||||||
Preference share capital | 0 | 0 | 0 | 0 | 0 | ||||||
Minority interests in profit | 0 | 0 | 0 | 0 | 0 | ||||||
Minority interests in net assets | 0 | 0 | 0 | 0 | 0 |
Return on net tangible assets, RONTA = Profit for shareholders ÷ Average net tangible assets over the year (beginning BS and end BS averaged).
£’000s | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||
Profit | -2,221 | 5,010 | 3,386 | 1,498 | 1,584 | 1,353 | ||||||
WC – averaged | -3,012 | -1,978 | -1039 | 314 | 1,544 | 1,625 | ||||||
Net non-current assets – averaged | 23,779 | 23,368 | 22,697 | 20,252 | 17,641 | 16,904 | ||||||
Totals to Net tang. assets – averaged | 20,767 | 21,390 | 21,658 | 20,566 | 19,185 | 18,529 | ||||||
RONTA | -10.7% | 23.4% | 15.6% | 7.3% | 8.3% | 7.3% |
£’000s | 2014 | 2013 | 2012 | ||
Profit | 2,574 | 4,420 | 6,310 | ||
WC – averaged | 3,791 | 5,156 | 3,837 | ||
Net non-current assets – averaged | 16,500 | 15,851 | 15,230 | ||
Totals to Net tang. assets – averaged | 20,291 | 21,007 | 18,067 | ||
RONTA | 12.7% | 21% | 34.9% |
The average RONTA over seven years is 13.3%. This period had some goo
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