We Like The Quality Of Bezeq The Israel Telecommunication's (TLV:BEZQ) Earnings

Bezeq The Israel Telecommunication Corp. Ltd's (TLV:BEZQ) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

See our latest analysis for Bezeq The Israel Telecommunication

A Closer Look At Bezeq The Israel Telecommunication'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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to March 2024, Bezeq The Israel Telecommunication had an accrual ratio of -0.10. That indicates that its free cash flow was a fair bit more than its statutory profit. Indeed, in the last twelve months it reported free cash flow of ₪1.9b, well over the ₪1.17b it reported in profit. Bezeq The Israel Telecommunication shareholders are no doubt pleased that free cash flow improved over the last twelve months.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Bezeq The Israel Telecommunication's Profit Performance

As we discussed above, Bezeq The Israel Telecommunication has perfectly satisfactory free cash flow relative to profit. Because of this, we think Bezeq The Israel Telecommunication's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 35% per year over the last three years. 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. If you want to do dive deeper into Bezeq The Israel Telecommunication, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Bezeq The Israel Telecommunication and you'll want to know about these bad boys.

This note has only looked at a single factor that sheds light on the nature of Bezeq The Israel Telecommunication'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.