Kulcs-Soft Számítástechnika Nyrt (BUSE:KULCSSOFT): A Look At Return On Capital

The content of this article will benefit those of you who are starting to educate yourself about investing in the stock market and want a simplistic look at the return on Kulcs-Soft Számítástechnika Nyrt (BUSE:KULCSSOFT) stock.

If you purchase a KULCSSOFT share you are effectively becoming a partner with many other shareholders. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. Thus, to understand how your money can grow by investing in Kulcs-Soft Számítástechnika Nyrt, you need to look at what the company returns to owners for the use of their capital, which can be done in many ways but today we will use return on capital employed (ROCE).

View our latest analysis for Kulcs-Soft Számítástechnika Nyrt

Calculating Return On Capital Employed for KULCSSOFT

Choosing to invest in Kulcs-Soft Számítástechnika Nyrt comes at the cost of investing in another potentially favourable company. Therefore all else aside, your investment in a certain company represents a vote of confidence that the money used to buy the stock will grow larger than if invested elsewhere. So the business’ ability to grow the size of your capital is very important and can be assessed by comparing the return on capital you can get on your investment with a hurdle rate that depends on the other return possibilities you can identify. We’ll look at Kulcs-Soft Számítástechnika Nyrt’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. I have calculated Kulcs-Soft Számítástechnika Nyrt’s ROCE for you below:

ROCE Calculation for KULCSSOFT

Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)

Capital Employed = (Total Assets – Current Liabilities)

∴ ROCE = Ft350.1m ÷ (Ft1.18b – Ft926.7m) = 139%

As you can see, KULCSSOFT earned HUF138.9 from every HUF100 you invested over the previous twelve months. This makes Kulcs-Soft Számítástechnika Nyrt exceptionally profitable when compared to a robust 15% ROCE yardstick. So if this rate continues in to the future and is able to either provide solid dividends or reinvestment opportunities, your capital will enlarge at a rapid rate over time.

BUSE:KULCSSOFT Last Perf September 27th 18
BUSE:KULCSSOFT Last Perf September 27th 18

Before moving forward

KULCSSOFT is efficient with the use of capital, but this is only the case if KULCSSOFT continues to maintain the presently healthy ROCE, which will change if the company either earns less or requires more capital to create earnings. Because of this, it is important to look beyond the final value of KULCSSOFT’s ROCE and understand what is happening to the individual components. Three years ago, KULCSSOFT’s ROCE was 34.3%, which means the company’s capital returns have improved. Over the same period, EBT went from Ft214.7m to Ft350.1m and the amount of capital employed has declined in response to a larger reliance on current liabilities (more borrowed money) , which is an indication that Kulcs-Soft Számítástechnika Nyrt has increased the ROCE for investors by producing more earnings and using less capital.

Next Steps

ROCE for KULCSSOFT investors has grown in the last few years and is currently at a level that makes the company an attractive candidate that is capable of producing solid capital returns, and hence, an attractive return on investment. This is an ideal situation to be in, but return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like future prospects and valuation. Without considering these fundamentals, you cannot be sure if this trend will continue or if you are getting a good deal for the future returns you are paying for. If you’re interested in diving deeper, take a look at what I’ve linked below for further information on these fundamentals and other potential investment opportunities.

  1. Future Outlook: What are well-informed industry analysts predicting for KULCSSOFT’s future growth? Take a look at our free research report of analyst consensus for KULCSSOFT’s outlook.
  2. Valuation: What is KULCSSOFT worth today? Is the stock undervalued, even if its ROCE is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether KULCSSOFT is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.