Statutory Profit Doesn't Reflect How Good Zhang Jia Gang Freetrade Science&Technology GroupLtd's (SHSE:600794) Earnings Are

Even though Zhang Jia Gang Freetrade Science&Technology Group Co.,Ltd.'s (SHSE:600794) recent earnings release was robust, the market didn't seem to notice. Investors are probably missing some underlying factors which are encouraging for the future of the company.

View our latest analysis for Zhang Jia Gang Freetrade Science&Technology GroupLtd

Zooming In On Zhang Jia Gang Freetrade Science&Technology GroupLtd'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. 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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.

Zhang Jia Gang Freetrade Science&Technology GroupLtd has an accrual ratio of -0.11 for the year to March 2024. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of CN¥509m in the last year, which was a lot more than its statutory profit of CN¥260.5m. Zhang Jia Gang Freetrade Science&Technology GroupLtd shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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 Zhang Jia Gang Freetrade Science&Technology GroupLtd's Profit Performance

Zhang Jia Gang Freetrade Science&Technology GroupLtd's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Zhang Jia Gang Freetrade Science&Technology GroupLtd's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 18% annually, over the last three years. 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 - Zhang Jia Gang Freetrade Science&Technology GroupLtd has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Zhang Jia Gang Freetrade Science&Technology GroupLtd'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 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.