We Think Themis G.R.E.N's (TLV:TMIS) Robust Earnings Are Conservative

Themis G.R.E.N. Ltd's (TLV:TMIS) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

Check out our latest analysis for Themis G.R.E.N

A Closer Look At Themis G.R.E.N's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to June 2024, Themis G.R.E.N recorded an accrual ratio of -0.66. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of ₪61m during the period, dwarfing its reported profit of ₪33.8m. Notably, Themis G.R.E.N had negative free cash flow last year, so the ₪61m it produced this year was a welcome improvement.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Themis G.R.E.N.

Our Take On Themis G.R.E.N's Profit Performance

Happily for shareholders, Themis G.R.E.N produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Themis G.R.E.N's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And one can definitely find a positive in the fact that it made a profit this year, despite 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that Themis G.R.E.N is showing 2 warning signs in our investment analysis and 1 of those can't be ignored...

This note has only looked at a single factor that sheds light on the nature of Themis G.R.E.N'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. 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.

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.