We Think Raval ACS' (TLV:RVL) Solid Earnings Are Understated

The stock was sluggish on the back of Raval ACS Ltd.'s (TLV:RVL) recent earnings report. Our analysis suggests that there are some reasons for hope that investors should be aware of.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Examining Cashflow Against Raval ACS' 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. 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Raval ACS has an accrual ratio of -0.14 for the year to June 2025. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of €21m during the period, dwarfing its reported profit of €2.36m. Raval ACS' free cash flow improved over the last year, which is generally good to see.

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

Our Take On Raval ACS' Profit Performance

As we discussed above, Raval ACS has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Raval ACS' statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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 Raval ACS as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Raval ACS (including 1 which is significant).

This note has only looked at a single factor that sheds light on the nature of Raval ACS' 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.