In This Article:
Soft earnings didn't appear to concern Waberer's International Nyrt.'s (BST:3WB) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.
Examining Cashflow Against Waberer's International Nyrt'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. 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. 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.
Waberer's International Nyrt has an accrual ratio of -0.40 for the year to December 2024. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. Indeed, in the last twelve months it reported free cash flow of €81m, well over the €21.7m it reported in profit. Waberer's International Nyrt shareholders are no doubt pleased that free cash flow improved over the last twelve months.
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 Waberer's International Nyrt's Profit Performance
Happily for shareholders, Waberer's International Nyrt produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Waberer's International Nyrt's statutory profit actually understates its earnings potential! And the EPS is up 22% 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 1 warning sign with Waberer's International Nyrt , and understanding this should be part of your investment process.