Automotive Stampings and Assemblies' (NSE:ASAL) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The subdued market reaction suggests that Automotive Stampings and Assemblies Limited's (NSE:ASAL) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Our free stock report includes 4 warning signs investors should be aware of before investing in Automotive Stampings and Assemblies. Read for free now.

Examining Cashflow Against Automotive Stampings and Assemblies' 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). 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. 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. 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 2025, Automotive Stampings and Assemblies had an accrual ratio of 0.61. Statistically speaking, that's a real negative for future earnings. And indeed, during the period the company didn't produce any free cash flow whatsoever. Even though it reported a profit of ₹167.8m, a look at free cash flow indicates it actually burnt through ₹233m in the last year. It's worth noting that Automotive Stampings and Assemblies generated positive FCF of ₹185m a year ago, so at least they've done it in the past.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Automotive Stampings and Assemblies.

Our Take On Automotive Stampings and Assemblies' Profit Performance

As we discussed above, we think Automotive Stampings and Assemblies' earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that Automotive Stampings and Assemblies' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. When we did our research, we found 4 warning signs for Automotive Stampings and Assemblies (2 are significant!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Automotive Stampings and Assemblies' 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.