We Think You Can Look Beyond Zephyrus Wing Energies' (TLV:ZPRS) Lackluster Earnings

Zephyrus Wing Energies Ltd's (TLV:ZPRS) earnings announcement last week didn't impress shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

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Examining Cashflow Against Zephyrus Wing Energies' 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). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that 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 having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Zephyrus Wing Energies has an accrual ratio of -0.11 for the year to March 2025. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. Indeed, in the last twelve months it reported free cash flow of ₪136m, well over the ₪4.78m it reported in profit. Zephyrus Wing Energies did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zephyrus Wing Energies.

Our Take On Zephyrus Wing Energies' Profit Performance

Zephyrus Wing Energies' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Zephyrus Wing Energies' earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back 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. If you want to do dive deeper into Zephyrus Wing Energies, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Zephyrus Wing Energies (of which 1 is significant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Zephyrus Wing Energies' 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.

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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.