Earnings Troubles May Signal Larger Issues for Ice Make Refrigeration (NSE:ICEMAKE) Shareholders

Last week's earnings announcement from Ice Make Refrigeration Limited (NSE:ICEMAKE) was disappointing to investors, with a sluggish profit figure. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

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A Closer Look At Ice Make Refrigeration's Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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.

Ice Make Refrigeration has an accrual ratio of 0.47 for the year to March 2025. As a general rule, that bodes poorly for future profitability. To wit, the company did not generate one whit of free cashflow in that time. In the last twelve months it actually had negative free cash flow, with an outflow of ₹524m despite its profit of ₹231.1m, mentioned above. We also note that Ice Make Refrigeration's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹524m.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ice Make Refrigeration.

Our Take On Ice Make Refrigeration's Profit Performance

As we have made quite clear, we're a bit worried that Ice Make Refrigeration didn't back up the last year's profit with free cashflow. For this reason, we think that Ice Make Refrigeration'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 the good news is that its EPS growth over the last three years has been very impressive. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To that end, you should learn about the 4 warning signs we've spotted with Ice Make Refrigeration (including 2 which are significant).

This note has only looked at a single factor that sheds light on the nature of Ice Make Refrigeration's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.