We Think Enel Generación Chile's (SNSE:ENELGXCH) Solid Earnings Are Understated

Investors signalled that they were pleased with Enel Generación Chile S.A.'s (SNSE:ENELGXCH) most recent earnings report. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

Our free stock report includes 1 warning sign investors should be aware of before investing in Enel Generación Chile. Read for free now.

Examining Cashflow Against Enel Generación Chile's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow.

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 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to March 2025, Enel Generación Chile had an accrual ratio of -0.13. That indicates that its free cash flow was a fair bit more than its statutory profit. To wit, it produced free cash flow of US$924m during the period, dwarfing its reported profit of US$522.9m. Enel Generación Chile 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 Enel Generación Chile.

Our Take On Enel Generación Chile's Profit Performance

Enel Generación Chile's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Based on this observation, we consider it likely that Enel Generación Chile's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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 Enel Generación Chile, you'd also look into what risks it is currently facing. For example - Enel Generación Chile has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Enel Generación Chile's 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.