Shareholders Will Be Pleased With The Quality of Performance Technologies' (ATH:PERF) Earnings

Performance Technologies S.A. (ATH:PERF) recently posted some strong earnings, and the market responded positively. We did some digging and found some further encouraging factors that investors will like.

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Examining Cashflow Against Performance Technologies' Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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".

Performance Technologies has an accrual ratio of -0.13 for the year to June 2025. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. Indeed, in the last twelve months it reported free cash flow of €8.7m, well over the €5.96m it reported in profit. Notably, Performance Technologies had negative free cash flow last year, so the €8.7m it produced this year was a welcome improvement.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Performance Technologies.

Our Take On Performance Technologies' Profit Performance

As we discussed above, Performance Technologies has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Performance Technologies' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 42% per year over the last three years. 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. While earnings are important, another area to consider is the balance sheet. You can see our latest analysis on Performance Technologies' balance sheet health here.

This note has only looked at a single factor that sheds light on the nature of Performance Technologies' 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.