Earnings Troubles May Signal Larger Issues for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) Shareholders

The market wasn't impressed with the soft earnings from Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira

A Closer Look At Intelbras - Indústria de Telecomunicação Eletrônica Brasileira'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.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to December 2024, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira had an accrual ratio of 0.25. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Even though it reported a profit of R$528.9m, a look at free cash flow indicates it actually burnt through R$116m in the last year. We saw that FCF was R$335m a year ago though, so Intelbras - Indústria de Telecomunicação Eletrônica Brasileira has at least been able to generate positive FCF in the past.

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 Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's Profit Performance

Intelbras - Indústria de Telecomunicação Eletrônica Brasileira'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. Therefore, it seems possible to us that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 45% per annum growth in EPS for the last three. 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. 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. For example, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's profit. But there are plenty of other ways to inform your opinion of a company. 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.