ALPHA ADRIATIC d.d's (ZGSE:ULPL) Earnings May Just Be The Starting Point

Investors were underwhelmed by the solid earnings posted by ALPHA ADRIATIC d.d. (ZGSE:ULPL) recently. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

We've discovered 3 warning signs about ALPHA ADRIATIC d.d. View them for free.

A Closer Look At ALPHA ADRIATIC d.d's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow.

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

For the year to March 2025, ALPHA ADRIATIC d.d had an accrual ratio of -0.13. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of €4.0m during the period, dwarfing its reported profit of €1.96m. ALPHA ADRIATIC d.d's free cash flow actually declined over the last year, which is disappointing, like non-biodegradable balloons.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of ALPHA ADRIATIC d.d.

Our Take On ALPHA ADRIATIC d.d's Profit Performance

ALPHA ADRIATIC d.d's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Based on this observation, we consider it likely that ALPHA ADRIATIC d.d's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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 ALPHA ADRIATIC d.d as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that ALPHA ADRIATIC d.d has 3 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of ALPHA ADRIATIC d.d'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.