CSN Mineração's (BVMF:CMIN3) Earnings Offer More Than Meets The Eye

The market seemed underwhelmed by the solid earnings posted by CSN Mineração S.A. (BVMF:CMIN3) recently. Our analysis suggests that there are some reasons for hope that investors should be aware of.

View our latest analysis for CSN Mineração

Zooming In On CSN Mineração's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. The ratio shows us how much a company's profit exceeds its FCF.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. 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. 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 2024, CSN Mineração had an accrual ratio of -0.55. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. In fact, it had free cash flow of R$7.3b in the last year, which was a lot more than its statutory profit of R$3.87b. CSN Mineração shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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 CSN Mineração's Profit Performance

Happily for shareholders, CSN Mineração produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that CSN Mineração's statutory profit actually understates its earnings potential! And the EPS is up 27% over the last twelve months. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 3 warning signs for CSN Mineração (1 is a bit concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of CSN Mineração'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. 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.