Thunderbird Entertainment Group's (CVE:TBRD) Performance Is Even Better Than Its Earnings Suggest

Investors were underwhelmed by the solid earnings posted by Thunderbird Entertainment Group Inc. (CVE:TBRD) recently. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

Check out our latest analysis for Thunderbird Entertainment Group

A Closer Look At Thunderbird Entertainment Group'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. 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. 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 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.

Over the twelve months to December 2024, Thunderbird Entertainment Group recorded an accrual ratio of -0.60. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of CA$39m in the last year, which was a lot more than its statutory profit of CA$4.82m. Given that Thunderbird Entertainment Group had negative free cash flow in the prior corresponding period, the trailing twelve month resul of CA$39m would seem to be a step in the right direction.

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 Thunderbird Entertainment Group's Profit Performance

As we discussed above, Thunderbird Entertainment Group's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Based on this observation, we consider it possible that Thunderbird Entertainment Group's 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 1 warning sign for Thunderbird Entertainment Group and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of Thunderbird Entertainment Group's profit. But there are plenty of other ways to inform your opinion of a company. 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.