Why Remsons Industries' (NSE:REMSONSIND) Earnings Are Better Than They Seem

Despite posting healthy earnings, Remsons Industries Limited's (NSE:REMSONSIND ) stock has been quite weak. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

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A Closer Look At Remsons Industries' 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'.

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. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Remsons Industries has an accrual ratio of -0.11 for the year to September 2025. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. In fact, it had free cash flow of ₹369m in the last year, which was a lot more than its statutory profit of ₹162.4m. Given that Remsons Industries had negative free cash flow in the prior corresponding period, the trailing twelve month resul of ₹369m would seem to be a step in the right direction.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Remsons Industries.

Our Take On Remsons Industries' Profit Performance

Remsons Industries' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Based on this observation, we consider it likely that Remsons Industries' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 54% 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 Remsons Industries, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Remsons Industries you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Remsons Industries' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.