Stock Analysis

Shareholders Will Be Pleased With The Quality of NextVison Stabilized Systems' (TLV:NXSN) Earnings

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When companies post strong earnings, the stock generally performs well, just like NextVison Stabilized Systems, Ltd.'s (TLV:NXSN) stock has recently. Our analysis found some more factors that we think are good for shareholders.

See our latest analysis for NextVison Stabilized Systems

TASE:NXSN Earnings and Revenue History March 17th 2023

Zooming In On NextVison Stabilized Systems' 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. 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. 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. 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 December 2022, NextVison Stabilized Systems recorded an accrual ratio of -0.82. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. Indeed, in the last twelve months it reported free cash flow of ₪14m, well over the ₪11.1m it reported in profit. NextVison Stabilized Systems 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 NextVison Stabilized Systems.

Our Take On NextVison Stabilized Systems' Profit Performance

Happily for shareholders, NextVison Stabilized Systems produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that NextVison Stabilized Systems' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 2 warning signs for NextVison Stabilized Systems and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of NextVison Stabilized Systems' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

Valuation is complex, but we're helping make it simple.

Find out whether NextVison Stabilized Systems is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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