We Like Zwack Unicum Nyrt's (BUSE:ZWACK) Earnings For More Than Just Statutory Profit

Zwack Unicum Nyrt.'s (BUSE:ZWACK) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

View our latest analysis for Zwack Unicum Nyrt

Examining Cashflow Against Zwack Unicum Nyrt'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. 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. The ratio shows us how much a company's profit exceeds its FCF.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Zwack Unicum Nyrt has an accrual ratio of -0.27 for the year to December 2024. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of Ft4.6b during the period, dwarfing its reported profit of Ft3.16b. Zwack Unicum Nyrt shareholders are no doubt pleased that free cash flow improved over the last twelve months.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zwack Unicum Nyrt.

Our Take On Zwack Unicum Nyrt's Profit Performance

As we discussed above, Zwack Unicum Nyrt'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 Zwack Unicum Nyrt's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 12% in 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. If you'd like to know more about Zwack Unicum Nyrt as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Zwack Unicum Nyrt, 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 Zwack Unicum Nyrt's 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.