Concerns Surrounding Koninklijke BAM Groep's (AMS:BAMNB) Performance

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The stock price didn't jump after Koninklijke BAM Groep nv (AMS:BAMNB) posted decent earnings last week. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

See our latest analysis for Koninklijke BAM Groep

earnings-and-revenue-history
ENXTAM:BAMNB Earnings and Revenue History August 6th 2024

A Closer Look At Koninklijke BAM Groep'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. 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. 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, Koninklijke BAM Groep had an accrual ratio of 0.59. 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. Over the last year it actually had negative free cash flow of €59m, in contrast to the aforementioned profit of €169.7m. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of €59m, 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 Koninklijke BAM Groep's Profit Performance

As we discussed above, we think Koninklijke BAM Groep's earnings were not supported by free cash flow, which might concern some investors. As a result, we think it may well be the case that Koninklijke BAM Groep's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 2 warning signs for Koninklijke BAM Groep (1 can't be ignored!) and we strongly recommend you look at them before investing.