Prizor Viztech's (NSE:PRIZOR) Profits May Not Reveal Underlying Issues

Prizor Viztech Limited (NSE:PRIZOR) 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.

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Zooming In On Prizor Viztech'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. 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. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to March 2025, Prizor Viztech had an accrual ratio of 0.98. Statistically speaking, that's a real negative for future earnings. To wit, the company did not generate one whit of free cashflow in that time. Over the last year it actually had negative free cash flow of ₹224m, in contrast to the aforementioned profit of ₹101.5m. We also note that Prizor Viztech's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹224m.

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

Our Take On Prizor Viztech's Profit Performance

As we discussed above, we think Prizor Viztech's earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that Prizor Viztech'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. 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. 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. For example, Prizor Viztech has 3 warning signs (and 2 which are significant) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Prizor Viztech'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.