We Think You Should Be Aware Of Some Concerning Factors In Cochin Shipyard's (NSE:COCHINSHIP) Earnings

Cochin Shipyard Limited (NSE:COCHINSHIP) just released a solid earnings report, and the stock displayed some strength. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

We've discovered 3 warning signs about Cochin Shipyard. View them for free.

A Closer Look At Cochin Shipyard's 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to March 2025, Cochin Shipyard had an accrual ratio of 0.47. 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 ₹8.27b, a look at free cash flow indicates it actually burnt through ₹7.9b in the last year. We also note that Cochin Shipyard's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹7.9b.

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 Cochin Shipyard's Profit Performance

As we discussed above, we think Cochin Shipyard's earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that Cochin Shipyard's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Nonetheless, it's still worth noting that its earnings per share have grown at 47% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Cochin Shipyard as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Cochin Shipyard you should be mindful of and 1 of these is a bit concerning.

This note has only looked at a single factor that sheds light on the nature of Cochin Shipyard's 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. 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.