NIIT Learning Systems' (NSE:NIITMTS) Solid Earnings Have Been Accounted For Conservatively

The stock was sluggish on the back of NIIT Learning Systems Limited's (NSE:NIITMTS) recent earnings report. Our analysis suggests that there are some reasons for hope that investors should be aware of.

See our latest analysis for NIIT Learning Systems

Zooming In On NIIT Learning Systems' 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to September 2024, NIIT Learning Systems had an accrual ratio of -0.12. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of ₹2.8b in the last year, which was a lot more than its statutory profit of ₹2.28b. NIIT Learning Systems shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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 NIIT Learning Systems' Profit Performance

NIIT Learning Systems' accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think NIIT Learning Systems' earnings potential is at least as good as it seems, and maybe even better! Better yet, its EPS are growing strongly, which is nice to see. 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. If you'd like to know more about NIIT Learning Systems as a business, it's important to be aware of any risks it's facing. For example - NIIT Learning Systems has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of NIIT Learning Systems' 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. 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.