Ganesh Infraworld's (NSE:GANESHIN) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for Ganesh Infraworld Limited's (NSE:GANESHIN) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

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A Closer Look At Ganesh Infraworld'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.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Ganesh Infraworld has an accrual ratio of 1.23 for the year to March 2025. 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 ₹400.5m, a look at free cash flow indicates it actually burnt through ₹919m in the last year. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of ₹919m, this year, indicates high risk.

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

Our Take On Ganesh Infraworld's Profit Performance

As we have made quite clear, we're a bit worried that Ganesh Infraworld didn't back up the last year's profit with free cashflow. For this reason, we think that Ganesh Infraworld's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you'd like to know more about Ganesh Infraworld as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Ganesh Infraworld (including 2 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Ganesh Infraworld's 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.