The Strong Earnings Posted By Presight AI Holding (ADX:PRESIGHT) Are A Good Indication Of The Strength Of The Business

Presight AI Holding PLC (ADX:PRESIGHT) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.

See our latest analysis for Presight AI Holding

Examining Cashflow Against Presight AI Holding's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. 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. 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 September 2023, Presight AI Holding had an accrual ratio of -1.06. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of د.إ1.3b in the last year, which was a lot more than its statutory profit of د.إ557.2m. Presight AI Holding shareholders are no doubt pleased that free cash flow improved over the last twelve months.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Presight AI Holding.

Our Take On Presight AI Holding's Profit Performance

Happily for shareholders, Presight AI Holding produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Presight AI Holding's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Unfortunately, though, its earnings per share actually fell back over the 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. If you want to do dive deeper into Presight AI Holding, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Presight AI Holding you should know about.

Today we've zoomed in on a single data point to better understand the nature of Presight AI Holding'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 that insiders are buying 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.