Statutory Profit Doesn't Reflect How Good Bijou Brigitte modische Accessoires' (ETR:BIJ) Earnings Are

Bijou Brigitte modische Accessoires Aktiengesellschaft's (ETR:BIJ) strong earnings report was rewarded with a positive stock price move. We did some digging and found some further encouraging factors that investors will like.

See our latest analysis for Bijou Brigitte modische Accessoires

Zooming In On Bijou Brigitte modische Accessoires' 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. The ratio shows us how much a company's profit exceeds its FCF.

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

Over the twelve months to December 2021, Bijou Brigitte modische Accessoires recorded an accrual ratio of -0.70. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. In fact, it had free cash flow of €73m in the last year, which was a lot more than its statutory profit of €17.0m. Bijou Brigitte modische Accessoires' free cash flow improved over the last year, which is generally good to see.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Bijou Brigitte modische Accessoires.

Our Take On Bijou Brigitte modische Accessoires' Profit Performance

As we discussed above, Bijou Brigitte modische Accessoires' accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Based on this observation, we consider it possible that Bijou Brigitte modische Accessoires' statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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. If you want to do dive deeper into Bijou Brigitte modische Accessoires, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Bijou Brigitte modische Accessoires you should know about.

Today we've zoomed in on a single data point to better understand the nature of Bijou Brigitte modische Accessoires' 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. 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 that insiders are buying to be useful.

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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.