Jiangsu Maixinlin Aviation Science and Technology (SHSE:688685) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Investors were disappointed with Jiangsu Maixinlin Aviation Science and Technology Corp.'s (SHSE:688685) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

View our latest analysis for Jiangsu Maixinlin Aviation Science and Technology

Zooming In On Jiangsu Maixinlin Aviation Science and Technology'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. The ratio shows us how much a company's profit exceeds its FCF.

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. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Over the twelve months to September 2024, Jiangsu Maixinlin Aviation Science and Technology recorded an accrual ratio of 0.90. As a general rule, that bodes poorly for future profitability. To wit, the company did not generate one whit of free cashflow in that time. In the last twelve months it actually had negative free cash flow, with an outflow of CN¥836m despite its profit of CN¥37.7m, mentioned above. We also note that Jiangsu Maixinlin Aviation Science and Technology's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of CN¥836m.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangsu Maixinlin Aviation Science and Technology.

Our Take On Jiangsu Maixinlin Aviation Science and Technology's Profit Performance

As we discussed above, we think Jiangsu Maixinlin Aviation Science and Technology's earnings were not supported by free cash flow, which might concern some investors. As a result, we think it may well be the case that Jiangsu Maixinlin Aviation Science and Technology's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 42% EPS growth in the 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Jiangsu Maixinlin Aviation Science and Technology you should know about.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Maixinlin Aviation Science and Technology's 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 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.