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Using capital intensity and return on capital employed as filters for security selection
Thesis (MComm)--Stellenbosch University, 2012.
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| Format: | Thesis |
| Language: | en_ZA |
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Stellenbosch : Stellenbosch University
2012
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| _version_ | 1867614100718092288 |
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| access_status_str | Open Access |
| author | Steyn, Johannes Petrus |
| author2 | Krige, J. D. |
| author_browse | Krige, J. D. Steyn, Johannes Petrus |
| author_facet | Krige, J. D. Steyn, Johannes Petrus |
| author_sort | Steyn, Johannes Petrus |
| collection | Thesis |
| dc_rights_str_mv | Stellenbosch University |
| description | Thesis (MComm)--Stellenbosch University, 2012. |
| format | Thesis |
| id | oai:scholar.sun.ac.za:10019.1/71792 |
| institution | Stellenbosch University (South Africa) |
| language | en_ZA |
| last_indexed | 2026-06-10T12:46:40.081Z |
| license_str | Other — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from SUNScholar — Stellenbosch University Repository |
| publishDate | 2012 |
| publishDateRange | 2012 |
| publishDateSort | 2012 |
| publisher | Stellenbosch : Stellenbosch University |
| publisherStr | Stellenbosch : Stellenbosch University |
| record_format | dspace |
| source_str | SUNScholar — Stellenbosch University Repository |
| spelling | oai:scholar.sun.ac.za:10019.1/71792 Using capital intensity and return on capital employed as filters for security selection Steyn, Johannes Petrus Krige, J. D. Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management. Capital intensity Return on capital employed (ROCE) Security selection Investment management Capital investments Rate of return Corporations -- Valuation Dissertations -- Business management Theses -- Business management Business Management Thesis (MComm)--Stellenbosch University, 2012. ENGLISH ABSTRACT: Do firms that have low dependence on physical assets as well as high profitability outperform companies with the opposite characteristics in the market? Despite the lack of empirical research, conventional wisdom would suggest that they should. Conceptually, investors should prefer profitable companies to less profitable companies, and lower capital-intensive to high capital-intensity firms. Using a large sample of global stocks over the period from 1988 to 2010, the effect of using capital intensity and return on capital employed (ROCE) as filters for portfolio inclusion was investigated. A quantitative research approach was followed in this study. This involved dividing the sample into five subsets, or quintiles, according to the specific metric (for example capital intensity). The total return of an equally weighted portfolio was then measured for each quintile for the subsequent 12 months. The portfolio was rebalanced annually and the subsequent 12-month return recorded. Because enhanced performance on new capital investments may take longer than 12 months to be reflected in share prices, quintile performance was also measured over five-year holding periods. The empirical findings of this study reveal that there was no discernible pattern of outperformance by low capital-intensive quintiles using annual rebalancing. However, the lowest capital-intensive firms had the highest average returns using five-year holding periods. The highest ROCE firms performed best with annual rebalancing and with five-year holding periods. Combining both capital intensity and ROCE, a portfolio focused on low capital intensity and high profitability produced a compound annual growth rate that is 9.18 percentage points higher than a portfolio focused on the highest capital intensity and the lowest ROCE. Over five-year holding periods there is a distinct outperformance by low capital-intensive firms with high operational profitability. These results indicate that allocation of investment capital to capital-intensive companies with low operational profitability seems likely to impair long-term returns, and there may be value in a focus on low capital-intensity firms that are able to generate high returns on capital employed. AFRIKAANSE OPSOMMING: Sal maatskappye met lae afhanklikheid van fisiese bates, asook hoë winsgewendheid, maatskappye met die teenoorgestelde eienskappe uitpresteer in die mark? Ten spyte van ‘n gebrek aan empiriese navorsing, sal konvensionele wysheid voorstel dat dit so moet wees. Beleggers behoort winsgewende maatskappye bo minder winsgewende maatskappye te verkies, en laer kapitaalintensiewe bo hoë kapitaalintensiewe maatskappye. Die gebruik van kapitaalintensiteit en opbrengs op kapitaal aangewend (OOKA) in die beleggingsbesluit word ondersoek deur gebruik te maak van ‘n groot steekproef globale aandele oor die tydperk 1988 tot 2010. 'n Kwantitatiewe navorsingsbenadering was gevolg in die studie. Dit het die verdeling van die steekproef in vyf onderafdelings, of kwintiele, volgens die spesifieke maatstawwe (byvoorbeeld kapitaal-intensiteit) behels. Die totale opbrengs van 'n gelyk-geweegde portefeulje is vervolgens gemeet vir elke kwintiel vir die daaropvolgende 12 maande. Die portefeulje is jaarliks herbalanseer en die daaropvolgende 12 maande se opbrengs is aangeteken. Omdat verbeterde prestasie op nuwe kapitaalbeleggings langer kan neem as 12 maande om in aandeelpryse weerspieël te word, is kwintiel prestasie ook oor vyf jaar hou periodes gemeet. Die bevindinge van hierdie studie dui daarop dat daar geen beduidende verbetering in prestasie onder laer kapitaalitensiewe kwintiele oor een jaar houperiodes was nie. Die laagste kapitaalintensiewe maatskappye het egter oor ‘n hou periode van vyf jaar die hoogste gemiddelde opbrengs gelewer. Die hoogste OOKA maatskappye het die beste gevaar met jaarlikse herbalansering en met 'n houperiode van vyf jaar. 'n Portefeulje gefokus op lae kapitaalintensiteit en hoë winsgewendheid het 'n saamgestelde jaarlikse groeikoers gelewer wat 9,18 persentasiepunte hoër was as 'n portefeulje gefokus op die hoogste kapitaalintensiteit en die laagste OOKA. Oor houperiodes van vyf jaar was daar duidelike uitprestering deur lae kapitaalintensiewe ondernemings met hoë operasionele winsgewendheid. Hierdie resultate dui daarop dat die toekenning van beleggingskapitaal aan kapitaalintensiewe maatskappye met lae operasionele winsgewendheid waarskynlik langtermynopbrengste benadeel en dat 'n fokus op lae kapitaalintensiteit maatskappye, wat in staat is om 'n hoë opbrengs op kapitaal te genereer, moontlik meer lonend kan wees. Masters 2012-11-13T08:41:49Z 2012-12-12T08:11:28Z 2012-11-13T08:41:49Z 2012-12-12T08:11:28Z 2012-12 Thesis http://hdl.handle.net/10019.1/71792 en_ZA Stellenbosch University xi, 131 p. : ill. application/pdf Stellenbosch : Stellenbosch University |
| spellingShingle | Capital intensity Return on capital employed (ROCE) Security selection Investment management Capital investments Rate of return Corporations -- Valuation Dissertations -- Business management Theses -- Business management Business Management Steyn, Johannes Petrus Using capital intensity and return on capital employed as filters for security selection |
| title | Using capital intensity and return on capital employed as filters for security selection |
| title_full | Using capital intensity and return on capital employed as filters for security selection |
| title_fullStr | Using capital intensity and return on capital employed as filters for security selection |
| title_full_unstemmed | Using capital intensity and return on capital employed as filters for security selection |
| title_short | Using capital intensity and return on capital employed as filters for security selection |
| title_sort | using capital intensity and return on capital employed as filters for security selection |
| topic | Capital intensity Return on capital employed (ROCE) Security selection Investment management Capital investments Rate of return Corporations -- Valuation Dissertations -- Business management Theses -- Business management Business Management |
| url | http://hdl.handle.net/10019.1/71792 |
| work_keys_str_mv | AT steynjohannespetrus usingcapitalintensityandreturnoncapitalemployedasfiltersforsecurityselection |