We Think You Can Look Beyond Infinity Logistics and Transport Ventures' (HKG:1442) Lackluster Earnings

Infinity Logistics and Transport Ventures Limited's (HKG:1442) stock was strong despite it releasing a soft earnings report last week. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

Check out our latest analysis for Infinity Logistics and Transport Ventures

A Closer Look At Infinity Logistics and Transport Ventures' 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. 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.

Infinity Logistics and Transport Ventures has an accrual ratio of -0.11 for the year to June 2024. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of RM68m during the period, dwarfing its reported profit of RM20.8m. Notably, Infinity Logistics and Transport Ventures had negative free cash flow last year, so the RM68m 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 Infinity Logistics and Transport Ventures.

Our Take On Infinity Logistics and Transport Ventures' Profit Performance

As we discussed above, Infinity Logistics and Transport Ventures has perfectly satisfactory free cash flow relative to profit. Because of this, we think Infinity Logistics and Transport Ventures' 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. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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. For example - Infinity Logistics and Transport Ventures has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Infinity Logistics and Transport Ventures' profit. 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.