We Think That There Are Issues Underlying Nutriplant Indústria e Comércio S/A's (BVMF:NUTR3) Earnings

Unsurprisingly, Nutriplant Indústria e Comércio S/A's (BVMF:NUTR3) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

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A Closer Look At Nutriplant Indústria e Comércio S/A'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. 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 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.

For the year to December 2024, Nutriplant Indústria e Comércio S/A had an accrual ratio of 0.27. We can therefore deduce that its free cash flow fell well short of covering its statutory profit. Over the last year it actually had negative free cash flow of R$2.6m, in contrast to the aforementioned profit of R$10.3m. It's worth noting that Nutriplant Indústria e Comércio S/A generated positive FCF of R$8.0m a year ago, so at least they've done it in the past. The good news for shareholders is that Nutriplant Indústria e Comércio S/A's accrual ratio was much better last year, so this year's poor reading might simply be a case of a short term mismatch between profit and FCF. Shareholders should look for improved cashflow relative to profit in the current year, if that is indeed the case.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nutriplant Indústria e Comércio S/A .

Our Take On Nutriplant Indústria e Comércio S/A's Profit Performance

Nutriplant Indústria e Comércio S/A's accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Because of this, we think that it may be that Nutriplant Indústria e Comércio S/A's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate 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 Nutriplant Indústria e Comércio S/A as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 3 warning signs for Nutriplant Indústria e Comércio S/A and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Nutriplant Indústria e Comércio S/A's profit. 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. 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.