Bukit Sembawang Estates Limited (SGX:B61) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

Check out our latest analysis for Bukit Sembawang Estates

Zooming In On Bukit Sembawang Estates' 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. 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'.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to September 2024, Bukit Sembawang Estates recorded an accrual ratio of -0.11. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of S$223m in the last year, which was a lot more than its statutory profit of S$108.5m. Given that Bukit Sembawang Estates had negative free cash flow in the prior corresponding period, the trailing twelve month resul of S$223m would seem to be a step in the right direction.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Bukit Sembawang Estates.

Our Take On Bukit Sembawang Estates' Profit Performance

Bukit Sembawang Estates' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Bukit Sembawang Estates' 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 an extremely impressive rate over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, Bukit Sembawang Estates has 2 warning signs (and 1 which can't be ignored) we think you should know about.