The Strong Earnings Posted By OSE Immunotherapeutics (EPA:OSE) Are A Good Indication Of The Strength Of The Business

Even though OSE Immunotherapeutics SA's (EPA:OSE) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

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Zooming In On OSE Immunotherapeutics' 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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

Over the twelve months to December 2024, OSE Immunotherapeutics recorded an accrual ratio of -0.16. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of €48m during the period, dwarfing its reported profit of €37.4m. Notably, OSE Immunotherapeutics had negative free cash flow last year, so the €48m it produced this year was a welcome improvement.

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 OSE Immunotherapeutics' Profit Performance

Happily for shareholders, OSE Immunotherapeutics produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think OSE Immunotherapeutics' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Be aware that OSE Immunotherapeutics is showing 3 warning signs in our investment analysis and 1 of those shouldn't be ignored...

Today we've zoomed in on a single data point to better understand the nature of OSE Immunotherapeutics' 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. 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.