Some May Be Optimistic About Telematic Interactive Bulgaria EAD's (BUL:TIB) Earnings

The market for Telematic Interactive Bulgaria EAD's (BUL:TIB) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Telematic Interactive Bulgaria EAD

Examining Cashflow Against Telematic Interactive Bulgaria EAD'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. 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. 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 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. 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 March 2024, Telematic Interactive Bulgaria EAD had an accrual ratio of -0.24. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of лв20m during the period, dwarfing its reported profit of лв18.5m. Telematic Interactive Bulgaria EAD did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Telematic Interactive Bulgaria EAD.

Our Take On Telematic Interactive Bulgaria EAD's Profit Performance

Happily for shareholders, Telematic Interactive Bulgaria EAD produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Telematic Interactive Bulgaria EAD's statutory profit actually understates its earnings potential! 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'd like to know more about Telematic Interactive Bulgaria EAD as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Telematic Interactive Bulgaria EAD you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Telematic Interactive Bulgaria EAD's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.