Latest news with #accrualRatio
Yahoo
4 days ago
- Business
- Yahoo
We Think Hong Leong Industries Berhad's (KLSE:HLIND) Profit Is Only A Baseline For What They Can Achieve
When companies post strong earnings, the stock generally performs well, just like Hong Leong Industries Berhad's (KLSE:HLIND) stock has recently. We did some digging and found some further encouraging factors that investors will like. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. This ratio tells us how much of a company's profit is not backed by free cashflow. That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking. Over the twelve months to March 2025, Hong Leong Industries Berhad recorded an accrual ratio of -0.21. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of RM576m during the period, dwarfing its reported profit of RM467.2m. Hong Leong Industries Berhad shareholders are no doubt pleased that free cash flow improved over the last twelve months. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates. Happily for shareholders, Hong Leong Industries Berhad produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Hong Leong Industries Berhad's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Better yet, its EPS are growing strongly, which is nice to see. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Hong Leong Industries Berhad, you'd also look into what risks it is currently facing. Our analysis shows 2 warning signs for Hong Leong Industries Berhad (1 doesn't sit too well with us!) and we strongly recommend you look at them before investing. Today we've zoomed in on a single data point to better understand the nature of Hong Leong Industries Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
Yahoo
24-05-2025
- Business
- Yahoo
lastminute.com's (VTX:LMN) Earnings Are Weaker Than They Seem
N.V.'s (VTX:LMN) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked. We've discovered 2 warning signs about View them for free. As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. The ratio shows us how much a company's profit exceeds its FCF. That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future". For the year to March 2025, had an accrual ratio of 0.88. That means it didn't generate anywhere near enough free cash flow to match its profit. Statistically speaking, that's a real negative for future earnings. To wit, it produced free cash flow of €10m during the period, falling well short of its reported profit of €19.6m. Given that had negative free cash flow in the prior corresponding period, the trailing twelve month resul of €10m would seem to be a step in the right direction. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates. As we have made quite clear, we're a bit worried that didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that underlying earnings power is lower than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 2 warning signs for (1 is a bit unpleasant!) that we believe deserve your full attention. Today we've zoomed in on a single data point to better understand the nature of profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
Yahoo
23-05-2025
- Business
- Yahoo
JOST Werke's (ETR:JST) Soft Earnings Are Actually Better Than They Appear
Shareholders appeared unconcerned with JOST Werke SE's (ETR:JST) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow. As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth. For the year to March 2025, JOST Werke had an accrual ratio of -0.11. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. To wit, it produced free cash flow of €125m during the period, dwarfing its reported profit of €45.6m. JOST Werke did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie. Having said that, there is more to the story. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part. See our latest analysis for JOST Werke That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates. JOST Werke's profit was reduced by unusual items worth €31m in the last twelve months, and this helped it produce high cash conversion, as reflected by its unusual items. This is what you'd expect to see where a company has a non-cash charge reducing paper profits. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect JOST Werke to produce a higher profit next year, all else being equal. In conclusion, both JOST Werke's accrual ratio and its unusual items suggest that its statutory earnings are probably reasonably conservative. Looking at all these factors, we'd say that JOST Werke's underlying earnings power is at least as good as the statutory numbers would make it seem. So while earnings quality is important, it's equally important to consider the risks facing JOST Werke at this point in time. You'd be interested to know, that we found 3 warning signs for JOST Werke and you'll want to know about them. After our examination into the nature of JOST Werke's profit, we've come away optimistic for the company. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
Yahoo
22-05-2025
- Business
- Yahoo
Tex Cycle Technology (M) Berhad's (KLSE:TEXCYCL) Problems Go Beyond Weak Profit
The subdued market reaction suggests that Tex Cycle Technology (M) Berhad's (KLSE:TEXCYCL) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers. We've discovered 3 warning signs about Tex Cycle Technology (M) Berhad. View them for free. In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF. Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking. Over the twelve months to March 2025, Tex Cycle Technology (M) Berhad recorded an accrual ratio of 0.21. We can therefore deduce that its free cash flow fell well short of covering its statutory profit. Even though it reported a profit of RM12.1m, a look at free cash flow indicates it actually burnt through RM25m in the last year. We also note that Tex Cycle Technology (M) Berhad's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of RM25m. Unfortunately for shareholders, the company has also been issuing new shares, diluting their share of future earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tex Cycle Technology (M) Berhad. One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Tex Cycle Technology (M) Berhad expanded the number of shares on issue by 9.9% over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Tex Cycle Technology (M) Berhad's historical EPS growth by clicking on this link. As you can see above, Tex Cycle Technology (M) Berhad has been growing its net income over the last few years, with an annualized gain of 131% over three years. Net income was down 40% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 43%. And so, you can see quite clearly that dilution is influencing shareholder earnings. In the long term, if Tex Cycle Technology (M) Berhad's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit. As it turns out, Tex Cycle Technology (M) Berhad couldn't match its profit with cashflow and its dilution means that shareholders own less of the company than the did before (unless they bought more shares). For the reasons mentioned above, we think that a perfunctory glance at Tex Cycle Technology (M) Berhad's statutory profits might make it look better than it really is on an underlying level. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 3 warning signs for Tex Cycle Technology (M) Berhad (1 is significant!) and we strongly recommend you look at these before investing. Our examination of Tex Cycle Technology (M) Berhad has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.
Yahoo
21-05-2025
- Business
- Yahoo
Cancom's (ETR:COK) Conservative Accounting Might Explain Soft Earnings
Cancom SE's (ETR:COK) earnings announcement last week didn't impress shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. The ratio shows us how much a company's profit exceeds its FCF. Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking. For the year to March 2025, Cancom had an accrual ratio of -0.14. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of €120m in the last year, which was a lot more than its statutory profit of €26.4m. Cancom's free cash flow actually declined over the last year, which is disappointing, like non-biodegradable balloons. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates. Cancom's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Based on this observation, we consider it likely that Cancom's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Cancom, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Cancom you should know about. Today we've zoomed in on a single data point to better understand the nature of Cancom's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.
