The Strong Earnings Posted By Cruzeiro do Sul Educacional (BVMF:CSED3) Are A Good Indication Of The Strength Of The Business

Cruzeiro do Sul Educacional S.A.'s (BVMF:CSED3) strong earnings report was rewarded with a positive stock price move. We did some digging and found some further encouraging factors that investors will like.

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Examining Cashflow Against Cruzeiro do Sul Educacional'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. 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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".

Cruzeiro do Sul Educacional has an accrual ratio of -0.26 for the year to September 2025. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of R$762m during the period, dwarfing its reported profit of R$252.5m. Cruzeiro do Sul Educacional's free cash flow improved over the last year, which is generally good to see.

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 Cruzeiro do Sul Educacional's Profit Performance

Happily for shareholders, Cruzeiro do Sul Educacional produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Cruzeiro do Sul Educacional's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Better yet, its EPS are growing strongly, which is nice to see. 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. 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. So feel free to check out our free graph representing analyst forecasts.

Today we've zoomed in on a single data point to better understand the nature of Cruzeiro do Sul Educacional's profit. But there are plenty of other ways to inform your opinion of a company. 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 with significant insider holdings 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.