LPS Brasil - Consultoria de Imóveis' (BVMF:LPSB3) Performance Is Even Better Than Its Earnings Suggest

By
Simply Wall St
Published
May 18, 2021
BOVESPA:LPSB3
Source: Shutterstock

LPS Brasil - Consultoria de Imóveis S.A. (BVMF:LPSB3) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

View our latest analysis for LPS Brasil - Consultoria de Imóveis

earnings-and-revenue-history
BOVESPA:LPSB3 Earnings and Revenue History May 19th 2021

Zooming In On LPS Brasil - Consultoria de Imóveis' Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

LPS Brasil - Consultoria de Imóveis has an accrual ratio of -0.53 for the year to March 2021. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of R$22m, well over the R$6.52m it reported in profit. LPS Brasil - Consultoria de Imóveis 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 LPS Brasil - Consultoria de Imóveis' Profit Performance

Happily for shareholders, LPS Brasil - Consultoria de Imóveis produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that LPS Brasil - Consultoria de Imóveis' statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. Obviously, we love to consider the historical data to inform our opinion of a company. But it can be really valuable to consider what other analysts are forecasting. At Simply Wall St, we have analyst estimates which you can view by clicking here.

This note has only looked at a single factor that sheds light on the nature of LPS Brasil - Consultoria de Imóveis' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

If you're looking for stocks to buy, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted


Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.