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Shareholders appeared unconcerned with DATA MODUL Aktiengesellschaft, Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.
See our latest analysis for DATA MODUL Produktion und Vertrieb von elektronischen Systemen
Examining Cashflow Against DATA MODUL Produktion und Vertrieb von elektronischen Systemen's Earnings
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). 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.
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.
DATA MODUL Produktion und Vertrieb von elektronischen Systemen has an accrual ratio of -0.16 for the year to September 2024. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of €31m in the last year, which was a lot more than its statutory profit of €7.58m. DATA MODUL Produktion und Vertrieb von elektronischen Systemen's 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 DATA MODUL Produktion und Vertrieb von elektronischen Systemen's Profit Performance
As we discussed above, DATA MODUL Produktion und Vertrieb von elektronischen Systemen's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think DATA MODUL Produktion und Vertrieb von elektronischen Systemen's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And it's also good to see that its earnings per share have improved a bit 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 2 warning signs for DATA MODUL Produktion und Vertrieb von elektronischen Systemen you should know about.