Solid Earnings May Not Tell The Whole Story For Range Intelligent Computing Technology Group (SZSE:300442)

The market shrugged off Range Intelligent Computing Technology Group Company Limited's (SZSE:300442) solid earnings report. We think that investors might be worried about some concerning underlying factors.

Check out our latest analysis for Range Intelligent Computing Technology Group

A Closer Look At Range Intelligent Computing Technology 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Range Intelligent Computing Technology Group has an accrual ratio of 0.44 for the year to September 2024. Statistically speaking, that's a real negative for future earnings. To wit, the company did not generate one whit of free cashflow in that time. Over the last year it actually had negative free cash flow of CN¥5.2b, in contrast to the aforementioned profit of CN¥2.16b. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of CN¥5.2b, this year, indicates high risk.

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 Range Intelligent Computing Technology Group's Profit Performance

As we have made quite clear, we're a bit worried that Range Intelligent Computing Technology Group didn't back up the last year's profit with free cashflow. For this reason, we think that Range Intelligent Computing Technology Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 5 warning signs for Range Intelligent Computing Technology Group you should be mindful of and 2 of these are potentially serious.

Today we've zoomed in on a single data point to better understand the nature of Range Intelligent Computing Technology Group'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.