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Unsurprisingly, YOC AG's (ETR:YOC) stock price was strong on the back of its healthy earnings report. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.
Check out our latest analysis for YOC
Zooming In On YOC's Earnings
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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.
Over the twelve months to June 2024, YOC recorded an accrual ratio of 0.58. That means it didn't generate anywhere near enough free cash flow to match its profit. As a general rule, that bodes poorly for future profitability. In fact, it had free cash flow of €2.3m in the last year, which was a lot less than its statutory profit of €3.96m. At this point we should mention that YOC did manage to increase its free cash flow in 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.
Our Take On YOC's Profit Performance
As we discussed above, we think YOC's earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that YOC's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 YOC, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for YOC you should be mindful of and 1 of these bad boys makes us a bit uncomfortable.