Jiangsu Lianyungang Port's (SHSE:601008) Earnings Offer More Than Meets The Eye

The market seemed underwhelmed by last week's earnings announcement from Jiangsu Lianyungang Port Co., Ltd. (SHSE:601008) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

See our latest analysis for Jiangsu Lianyungang Port

Zooming In On Jiangsu Lianyungang Port'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'.

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. 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.

Jiangsu Lianyungang Port has an accrual ratio of -0.14 for the year to June 2024. That indicates that its free cash flow was a fair bit more than its statutory profit. To wit, it produced free cash flow of CN¥1.0b during the period, dwarfing its reported profit of CN¥192.9m. Given that Jiangsu Lianyungang Port had negative free cash flow in the prior corresponding period, the trailing twelve month resul of CN¥1.0b would seem to be a step in the right direction.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangsu Lianyungang Port.

Our Take On Jiangsu Lianyungang Port's Profit Performance

As we discussed above, Jiangsu Lianyungang Port has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Jiangsu Lianyungang Port'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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 1 warning sign for Jiangsu Lianyungang Port and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Jiangsu Lianyungang Port'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.