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Despite posting some strong earnings, the market for Borussia Dortmund GmbH & Co. Kommanditgesellschaft auf Aktien's (ETR:BVB) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.
View our latest analysis for Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien
A Closer Look At Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Earnings
One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.
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 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. 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 June 2024, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien had an accrual ratio of 0.42. As a general rule, that bodes poorly for future profitability. To wit, the company did not generate one whit of free cashflow in that time. Even though it reported a profit of €44.3m, a look at free cash flow indicates it actually burnt through €93m in the last year. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of €93m, this year, indicates high risk.
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 Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Profit Performance
As we have made quite clear, we're a bit worried that Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien didn't back up the last year's profit with free cashflow. For this reason, we think that Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. So while earnings quality is important, it's equally important to consider the risks facing Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien at this point in time. Case in point: We've spotted 2 warning signs for Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien you should be aware of.