We Like Shri Ahimsa Naturals' (NSE:SHRIAHIMSA) Earnings For More Than Just Statutory Profit

Investors signalled that they were pleased with Shri Ahimsa Naturals Limited's (NSE:SHRIAHIMSA) most recent earnings report. According to our analysis of the report, the strong headline profit numbers are supported by strong earnings fundamentals.

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A Closer Look At Shri Ahimsa Naturals' Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. The ratio shows us how much a company's profit exceeds its FCF.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to March 2025, Shri Ahimsa Naturals had an accrual ratio of -0.19. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of ₹375m in the last year, which was a lot more than its statutory profit of ₹219.0m. Given that Shri Ahimsa Naturals had negative free cash flow in the prior corresponding period, the trailing twelve month resul of ₹375m would seem to be a step in the right direction.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shri Ahimsa Naturals.

Our Take On Shri Ahimsa Naturals' Profit Performance

As we discussed above, Shri Ahimsa Naturals' accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Shri Ahimsa Naturals' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. So while earnings quality is important, it's equally important to consider the risks facing Shri Ahimsa Naturals at this point in time. When we did our research, we found 2 warning signs for Shri Ahimsa Naturals (1 is concerning!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Shri Ahimsa Naturals' 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. 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.