We Think You Should Be Aware Of Some Concerning Factors In Lavvi Empreendimentos Imobiliários' (BVMF:LAVV3) Earnings

The market for Lavvi Empreendimentos Imobiliários S.A.'s (BVMF:LAVV3) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

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A Closer Look At Lavvi Empreendimentos Imobiliários' 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). 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.

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".

Lavvi Empreendimentos Imobiliários has an accrual ratio of 0.33 for the year to September 2025. Therefore, we know that it's free cashflow was significantly lower than its statutory profit, raising questions about how useful that profit figure really is. Even though it reported a profit of R$429.4m, a look at free cash flow indicates it actually burnt through R$61m in the last year. We also note that Lavvi Empreendimentos Imobiliários' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of R$61m.

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 Lavvi Empreendimentos Imobiliários' Profit Performance

As we discussed above, we think Lavvi Empreendimentos Imobiliários' earnings were not supported by free cash flow, which might concern some investors. As a result, we think it may well be the case that Lavvi Empreendimentos Imobiliários' underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 2 warning signs for Lavvi Empreendimentos Imobiliários (1 is significant!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Lavvi Empreendimentos Imobiliários' 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.