Some Investors May Be Willing To Look Past Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's (ETR:BVB) Soft Earnings

The market was pleased with the recent earnings report from Borussia Dortmund GmbH & Co. Kommanditgesellschaft auf Aktien (ETR:BVB), despite the profit numbers being soft. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

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Zooming In On Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien'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. 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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien has an accrual ratio of 0.20 for the year to March 2025. Unfortunately, that means its free cash flow fell significantly short of its reported profits. In the last twelve months it actually had negative free cash flow, with an outflow of €66m despite its profit of €8.33m, mentioned above. We also note that Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of €66m. Having said that, there is more to the story. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part.

View our latest analysis for Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien

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.

How Do Unusual Items Influence Profit?

Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's profit suffered from unusual items, which reduced profit by €10.0m in the last twelve months. In the case where this was a non-cash charge it would have made it easier to have high cash conversion, so it's surprising that the accrual ratio tells a different story. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien took a rather significant hit from unusual items in the year to March 2025. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Profit Performance

In conclusion, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's accrual ratio suggests that its statutory earnings are not backed by cash flow, even though unusual items weighed on profit. Based on these factors, we think that Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's profits are a reasonably conservative guide to its underlying profitability. 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 3 warning signs for Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien you should be mindful of and 1 of these is potentially serious.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.