FMS Enterprises Migun's (TLV:FBRT) Weak Earnings May Only Reveal A Part Of The Whole Picture

FMS Enterprises Migun Ltd's (TLV:FBRT) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

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A Closer Look At FMS Enterprises Migun'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). 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. 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 September 2025, FMS Enterprises Migun had an accrual ratio of 0.75. Ergo, its free cash flow is significantly weaker than its profit. Statistically speaking, that's a real negative for future earnings. To wit, it produced free cash flow of US$16m during the period, falling well short of its reported profit of US$43.2m. FMS Enterprises Migun shareholders will no doubt be hoping that its free cash flow bounces back next year, since it was down 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 FMS Enterprises Migun.

Our Take On FMS Enterprises Migun's Profit Performance

As we discussed above, we think FMS Enterprises Migun's earnings were not supported by free cash flow, which might concern some investors. As a result, we think it may well be the case that FMS Enterprises Migun's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 FMS Enterprises Migun as a business, it's important to be aware of any risks it's facing. Our analysis shows 2 warning signs for FMS Enterprises Migun (1 is significant!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of FMS Enterprises Migun'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.