Zhang Jia Gang Freetrade Science&Technology GroupLtd's (SHSE:600794) Soft Earnings Don't Show The Whole Picture

Soft earnings didn't appear to concern Zhang Jia Gang Freetrade Science&Technology Group Co.,Ltd.'s (SHSE:600794) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

Examining Cashflow Against Zhang Jia Gang Freetrade Science&Technology GroupLtd'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. 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'.

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. 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 -0.28 for the year to December 2024. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. Indeed, in the last twelve months it reported free cash flow of CN¥795m, well over the CN¥209.8m it reported in profit. 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

Happily for shareholders, Zhang Jia Gang Freetrade Science&Technology GroupLtd produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Zhang Jia Gang Freetrade Science&Technology GroupLtd's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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. If you'd like to know more about Zhang Jia Gang Freetrade Science&Technology GroupLtd as a business, it's important to be aware of any risks it's facing. For example - Zhang Jia Gang Freetrade Science&Technology GroupLtd 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 Zhang Jia Gang Freetrade Science&Technology GroupLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.