Jubilant FoodWorks' (NSE:JUBLFOOD) Soft Earnings Are Actually Better Than They Appear

Soft earnings didn't appear to concern Jubilant FoodWorks Limited's (NSE:JUBLFOOD) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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Zooming In On Jubilant FoodWorks' 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.

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. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Jubilant FoodWorks has an accrual ratio of -0.17 for the year to March 2025. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. To wit, it produced free cash flow of ₹8.1b during the period, dwarfing its reported profit of ₹2.26b. Jubilant FoodWorks' free cash flow improved over the last year, which is generally good to see.

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 Jubilant FoodWorks' Profit Performance

Happily for shareholders, Jubilant FoodWorks produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Jubilant FoodWorks' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the 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 while earnings quality is important, it's equally important to consider the risks facing Jubilant FoodWorks at this point in time. Case in point: We've spotted 2 warning signs for Jubilant FoodWorks you should be mindful of and 1 of these makes us a bit uncomfortable.

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