We Think D-BOX Technologies' (TSE:DBO) Robust Earnings Are Conservative

D-BOX Technologies Inc.'s (TSE:DBO) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

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A Closer Look At D-BOX Technologies' Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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. 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 June 2025, D-BOX Technologies had an accrual ratio of -0.35. 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 CA$10m in the last year, which was a lot more than its statutory profit of CA$6.23m. D-BOX Technologies shareholders are no doubt pleased that free cash flow improved over the last twelve months.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of D-BOX Technologies.

Our Take On D-BOX Technologies' Profit Performance

Happily for shareholders, D-BOX Technologies produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that D-BOX Technologies' statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into D-BOX Technologies, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for D-BOX Technologies and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of D-BOX Technologies' 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.