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Even though Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6 ) posted strong earnings, investors appeared to be underwhelmed. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.
See our latest analysis for Yangzijiang Shipbuilding (Holdings)
Examining Cashflow Against Yangzijiang Shipbuilding (Holdings)'s 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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF.
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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
For the year to December 2024, Yangzijiang Shipbuilding (Holdings) had an accrual ratio of -0.70. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of CN¥12b during the period, dwarfing its reported profit of CN¥6.63b. Yangzijiang Shipbuilding (Holdings) 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 Yangzijiang Shipbuilding (Holdings)'s Profit Performance
Happily for shareholders, Yangzijiang Shipbuilding (Holdings) produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Yangzijiang Shipbuilding (Holdings)'s statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. While it's really important to consider how well a company's statutory earnings represent its true earnings power, it's also worth taking a look at what analysts are forecasting for the future. Luckily, you can check out what analysts are forecasting by clicking here.