Why São Paulo Turismo's (BVMF:AHEB3) Shaky Earnings Are Just The Beginning Of Its Problems

Investors were disappointed by São Paulo Turismo S.A.'s (BVMF:AHEB3 ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

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Examining Cashflow Against São Paulo Turismo'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.

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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to September 2025, São Paulo Turismo had an accrual ratio of 0.57. That means it didn't generate anywhere near enough free cash flow to match its profit. As a general rule, that bodes poorly for future profitability. To wit, it produced free cash flow of R$7.6m during the period, falling well short of its reported profit of R$82.5m. São Paulo Turismo's free cash flow actually declined over the last year, but it may bounce back next year, since free cash flow is often more volatile than accounting profits.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of São Paulo Turismo.

Our Take On São Paulo Turismo's Profit Performance

As we have made quite clear, we're a bit worried that São Paulo Turismo didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that São Paulo Turismo's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing São Paulo Turismo at this point in time. Every company has risks, and we've spotted 4 warning signs for São Paulo Turismo (of which 2 shouldn't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of São Paulo Turismo's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.