DATA MODUL Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) Soft Earnings Don't Show The Whole Picture

Shareholders appeared unconcerned with DATA MODUL Aktiengesellschaft, Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for DATA MODUL Produktion und Vertrieb von elektronischen Systemen

A Closer Look At DATA MODUL Produktion und Vertrieb von elektronischen Systemen's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. This ratio tells us how much of a company's profit is not backed by free cashflow.

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

For the year to June 2024, DATA MODUL Produktion und Vertrieb von elektronischen Systemen had an accrual ratio of -0.18. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of €36m, well over the €11.0m it reported in profit. DATA MODUL Produktion und Vertrieb von elektronischen Systemen 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 DATA MODUL Produktion und Vertrieb von elektronischen Systemen's Profit Performance

Happily for shareholders, DATA MODUL Produktion und Vertrieb von elektronischen Systemen produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think DATA MODUL Produktion und Vertrieb von elektronischen Systemen'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 37% per year 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. If you'd like to know more about DATA MODUL Produktion und Vertrieb von elektronischen Systemen as a business, it's important to be aware of any risks it's facing. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of DATA MODUL Produktion und Vertrieb von elektronischen Systemen.

Today we've zoomed in on a single data point to better understand the nature of DATA MODUL Produktion und Vertrieb von elektronischen Systemen's 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 with significant insider holdings 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.