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The market was pleased with the recent earnings report from Elixirr International plc (LON:ELIX), despite the profit numbers being soft. We think that investors might be looking at some positive factors beyond the earnings numbers.
We've discovered 1 warning sign about Elixirr International. View them for free.
Zooming In On Elixirr International'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). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow.
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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.
For the year to December 2024, Elixirr International had an accrual ratio of -0.11. Therefore, its statutory earnings were quite a lot less than its free cashflow. In fact, it had free cash flow of UK£29m in the last year, which was a lot more than its statutory profit of UK£16.4m. Elixirr International'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 Elixirr International's Profit Performance
As we discussed above, Elixirr International has perfectly satisfactory free cash flow relative to profit. Because of this, we think Elixirr International's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 58% per year 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. If you'd like to know more about Elixirr International as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Elixirr International you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of Elixirr International's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.