The Strong Earnings Posted By Koncar - distributivni i specijalni transformatori d.d (ZGSE:KODT) Are A Good Indication Of The Strength Of The Business

Koncar - distributivni i specijalni transformatori d.d. (ZGSE:KODT) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

View our latest analysis for Koncar - distributivni i specijalni transformatori d.d

Zooming In On Koncar - distributivni i specijalni transformatori d.d'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. 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. 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.

For the year to September 2024, Koncar - distributivni i specijalni transformatori d.d had an accrual ratio of -0.47. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of €143m, well over the €107.8m it reported in profit. Koncar - distributivni i specijalni transformatori d.d's free cash flow improved over the last year, which is generally good to see.

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 Koncar - distributivni i specijalni transformatori d.d's Profit Performance

As we discussed above, Koncar - distributivni i specijalni transformatori d.d's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Based on this observation, we consider it possible that Koncar - distributivni i specijalni transformatori d.d's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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 want to do dive deeper into Koncar - distributivni i specijalni transformatori d.d, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Koncar - distributivni i specijalni transformatori d.d, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Koncar - distributivni i specijalni transformatori d.d's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.