There May Be Reason For Hope In AS Harju Elekter's (TAL:HAE1T) Disappointing Earnings

The market for AS Harju Elekter's (TAL:HAE1T) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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Zooming In On AS Harju Elekter'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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF.

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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

AS Harju Elekter has an accrual ratio of -0.12 for the year to December 2024. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of €18m in the last year, which was a lot more than its statutory profit of €3.18m. Given that AS Harju Elekter had negative free cash flow in the prior corresponding period, the trailing twelve month resul of €18m 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 AS Harju Elekter .

Our Take On AS Harju Elekter's Profit Performance

As we discussed above, AS Harju Elekter has perfectly satisfactory free cash flow relative to profit. Because of this, we think AS Harju Elekter's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the 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'd like to know more about AS Harju Elekter as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for AS Harju Elekter (1 is a bit concerning) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of AS Harju Elekter'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. 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.