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Corcept Therapeutics Incorporated's (NASDAQ:CORT) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.
Examining Cashflow Against Corcept Therapeutics' 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. The ratio shows us how much a company's profit exceeds its FCF.
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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
Corcept Therapeutics has an accrual ratio of -0.18 for the year to March 2025. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. To wit, it produced free cash flow of US$177m during the period, dwarfing its reported profit of US$132.5m. Corcept Therapeutics' free cash flow improved over the last year, which is generally good to see.
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 Corcept Therapeutics' Profit Performance
Happily for shareholders, Corcept Therapeutics produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Corcept Therapeutics' statutory profit actually understates its earnings potential! And the EPS is up 29% annually, over the last three years. 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 Corcept Therapeutics at this point in time. Case in point: We've spotted 1 warning sign for Corcept Therapeutics you should be aware of.