Eastroc Beverage(Group)'s (SHSE:605499) Solid Earnings Are Supported By Other Strong Factors

The subdued stock price reaction suggests that Eastroc Beverage(Group) Co., Ltd.'s (SHSE:605499) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

View our latest analysis for Eastroc Beverage(Group)

Zooming In On Eastroc Beverage(Group)'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. 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. 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. 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. 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 December 2024, Eastroc Beverage(Group) had an accrual ratio of -0.30. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of CN¥4.1b, well over the CN¥3.33b it reported in profit. Eastroc Beverage(Group) 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 Eastroc Beverage(Group)'s Profit Performance

Happily for shareholders, Eastroc Beverage(Group) produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Eastroc Beverage(Group)'s underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you'd like to know more about Eastroc Beverage(Group) as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Eastroc Beverage(Group) you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Eastroc Beverage(Group)'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 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.