In This Article:
Shareholders appeared unconcerned with Hugo Boss AG's (ETR:BOSS) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.
View our latest analysis for Hugo Boss
Examining Cashflow Against Hugo Boss' Earnings
One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. 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 it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
Over the twelve months to December 2024, Hugo Boss recorded an accrual ratio of -0.17. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of €498m, well over the €213.5m it reported in profit. Hugo Boss' 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 Hugo Boss' Profit Performance
Happily for shareholders, Hugo Boss produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Hugo Boss' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 55% per year 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 Hugo Boss, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Hugo Boss has 1 warning sign and it would be unwise to ignore this.