NUTEX Investments' (BUSE:NUTEX) Earnings Might Be Weaker Than You Think

NUTEX Investments Public Limited Company (BUSE:NUTEX) posted some decent earnings, but shareholders didn't react strongly. Our analysis suggests they may be concerned about some underlying details.

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Zooming In On NUTEX Investments' 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. 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.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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. 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 December 2024, NUTEX Investments had an accrual ratio of 0.62. Statistically speaking, that's a real negative for future earnings. And indeed, during the period the company didn't produce any free cash flow whatsoever. Over the last year it actually had negative free cash flow of Ft44m, in contrast to the aforementioned profit of Ft423.4m. We also note that NUTEX Investments' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of Ft44m. Notably, the company has issued new shares, thus diluting existing shareholders and reducing their share of future earnings.

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

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, NUTEX Investments issued 7.0% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of NUTEX Investments' EPS by clicking here.

How Is Dilution Impacting NUTEX Investments' Earnings Per Share (EPS)?

As you can see above, NUTEX Investments has been growing its net income over the last few years, with an annualized gain of 3,237% over three years. In comparison, earnings per share only gained 2,783% over the same period. And the 147% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 150% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So NUTEX Investments shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Our Take On NUTEX Investments' Profit Performance

As it turns out, NUTEX Investments couldn't match its profit with cashflow and its dilution means that earnings per share growth is lagging net income growth. Considering all this we'd argue NUTEX Investments' profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about NUTEX Investments as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 3 warning signs for NUTEX Investments and we think they deserve your attention.

Our examination of NUTEX Investments has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.