AIC Mines' (ASX:A1M) Performance Raises Some Questions

After announcing healthy earnings, AIC Mines Limited's (ASX:A1M) stock rose over the last week. However, we think that shareholders should be aware of some other factors beyond the profit numbers.

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Zooming In On AIC Mines' 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. 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. 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.

Over the twelve months to June 2025, AIC Mines recorded an accrual ratio of 0.45. Statistically speaking, that's a real negative for future earnings. To wit, the company did not generate one whit of free cashflow in that time. Over the last year it actually had negative free cash flow of AU$62m, in contrast to the aforementioned profit of AU$15.0m. We also note that AIC Mines' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of AU$62m. Notably, the company has issued new shares, thus diluting existing shareholders and reducing their share of future earnings.

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.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, AIC Mines issued 39% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out AIC Mines' historical EPS growth by clicking on this link.

A Look At The Impact Of AIC Mines' Dilution On Its Earnings Per Share (EPS)

We don't have any data on the company's profits from three years ago. The good news is that profit was up 94% in the last twelve months. But EPS was less impressive, up only 59% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if AIC Mines can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Our Take On AIC Mines' Profit Performance

As it turns out, AIC Mines couldn't match its profit with cashflow and its dilution means that earnings per share growth is lagging net income growth. For the reasons mentioned above, we think that a perfunctory glance at AIC Mines' statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about AIC Mines as a business, it's important to be aware of any risks it's facing. For example - AIC Mines has 2 warning signs we think you should be aware of.

Our examination of AIC Mines has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.