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Investors were underwhelmed by the solid earnings posted by Thunderbird Entertainment Group Inc. (CVE:TBRD) recently. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.
See our latest analysis for Thunderbird Entertainment Group
Zooming In On Thunderbird Entertainment Group'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.
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. 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 December 2024, Thunderbird Entertainment Group recorded an accrual ratio of -0.60. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of CA$39m in the last year, which was a lot more than its statutory profit of CA$4.82m. Given that Thunderbird Entertainment Group had negative free cash flow in the prior corresponding period, the trailing twelve month resul of CA$39m would seem to be a step in the right direction.
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 Thunderbird Entertainment Group's Profit Performance
As we discussed above, Thunderbird Entertainment Group's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Based on this observation, we consider it possible that Thunderbird Entertainment Group's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Thunderbird Entertainment Group you should be aware of.