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Schneider Electric Infrastructure's (NSE:SCHNEIDER) Robust Earnings Are Supported By Other Strong Factors
Even though Schneider Electric Infrastructure Limited's (NSE:SCHNEIDER) recent earnings release was robust, the market didn't seem to notice. Investors are probably missing some underlying factors which are encouraging for the future of the company.
Check out our latest analysis for Schneider Electric Infrastructure
A Closer Look At Schneider Electric Infrastructure'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. The ratio shows us how much a company's profit exceeds its FCF.
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. 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.
Schneider Electric Infrastructure has an accrual ratio of -0.13 for the year to March 2022. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of ₹948m during the period, dwarfing its reported profit of ₹276.2m. Notably, Schneider Electric Infrastructure had negative free cash flow last year, so the ₹948m it produced this year was a welcome improvement.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Schneider Electric Infrastructure.
Our Take On Schneider Electric Infrastructure's Profit Performance
As we discussed above, Schneider Electric Infrastructure has perfectly satisfactory free cash flow relative to profit. Because of this, we think Schneider Electric Infrastructure's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 2 warning signs for Schneider Electric Infrastructure (1 can't be ignored!) that we believe deserve your full attention.
Today we've zoomed in on a single data point to better understand the nature of Schneider Electric Infrastructure'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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.
About NSEI:SCHNEIDER
Schneider Electric Infrastructure
Designs, manufactures, builds, and services products and systems for electricity distribution in India and internationally.
Excellent balance sheet with limited growth.