Understanding Your Return On Investment In Q-Soft Verwaltungs AG (BST:QS6A)

This article is intended for those of you who are at the beginning of your investing journey and want a simplistic look at the return on Q-Soft Verwaltungs AG (BST:QS6A) stock.

Purchasing Q-Soft Verwaltungs gives you an ownership stake in the company. Owing to this, it is important that the underlying business is producing a sufficient amount of income from the capital invested by stockholders. This is because the actual cash flow generated by the business dictates the potential for income (dividends) and capital appreciation (price increases), which are the two ways to achieve positive returns when buying a stock. To understand Q-Soft Verwaltungs’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.

Check out our latest analysis for Q-Soft Verwaltungs

Q-Soft Verwaltungs's Return On Capital Employed

You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. 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. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if Q-Soft Verwaltungs is good at growing investor capital. QS6A’s ROCE is calculated below:

The calculation above shows that QS6A’s earnings were 9.03% of capital employed. Comparing this to a healthy 15% benchmark shows Q-Soft Verwaltungs is currently unable to return a satisfactory amount to owners for the use of their capital, which isn't good for investors who have forgone other potentially solid companies.

A deeper look

QS6A doesn't return an attractive amount on capital, but this will only continue if the company is unable to increase earnings or decrease current capital requirements. Because of this, it is important to look beyond the final value of QS6A’s ROCE and understand what is happening to the individual components. Three years ago, QS6A’s ROCE was 0.036%, which means the company's capital returns have improved. We can see that earnings have increased from €575.00 to €164.61K whilst capital employed has also increased but to a smaller extent, which means the company has been able to improve ROCE by driving up earnings relative to the capital invested in the business.

Next Steps

Despite Q-Soft Verwaltungs’s current ROCE remains at an attractive level, the company has triggered an upward trend over the recent past which could be a signal of an improving company. Because return on capital employed is a static metric, you should be looking at it in conjunction with other fundamental indicators like the management team and valuation to determine if an opportunity exists that isn't made apparent by looking at past data. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate QS6A or move on to other alternatives.

1. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for Q-Soft Verwaltungs's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.

2. Valuation: What is QS6A worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether QS6A 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.