Empresa Constructora Moller y Pérez Cotapos' (SNSE:MOLLER) Solid Earnings Are Supported By Other Strong Factors

Empresa Constructora Moller y Pérez Cotapos S.A. (SNSE:MOLLER) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.

View our latest analysis for Empresa Constructora Moller y Pérez Cotapos

Examining Cashflow Against Empresa Constructora Moller y Pérez Cotapos' 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. 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 having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. 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 2023, Empresa Constructora Moller y Pérez Cotapos had an accrual ratio of -0.10. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of CL$37b in the last year, which was a lot more than its statutory profit of CL$959.7m. Given that Empresa Constructora Moller y Pérez Cotapos had negative free cash flow in the prior corresponding period, the trailing twelve month resul of CL$37b would seem to be a step in the right direction.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Empresa Constructora Moller y Pérez Cotapos.

Our Take On Empresa Constructora Moller y Pérez Cotapos' Profit Performance

Empresa Constructora Moller y Pérez Cotapos' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Empresa Constructora Moller y Pérez Cotapos' earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 3 warning signs for Empresa Constructora Moller y Pérez Cotapos (2 make us uncomfortable) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Empresa Constructora Moller y Pérez Cotapos' 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.

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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.