Jupiter Life Line Hospitals' (NSE:JLHL) Solid Earnings May Rest On Weak Foundations

Jupiter Life Line Hospitals Limited's (NSE:JLHL) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

Our free stock report includes 1 warning sign investors should be aware of before investing in Jupiter Life Line Hospitals. Read for free now.

Zooming In On Jupiter Life Line Hospitals' 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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Jupiter Life Line Hospitals has an accrual ratio of 0.27 for the year to March 2025. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Over the last year it actually had negative free cash flow of ₹674m, in contrast to the aforementioned profit of ₹1.93b. We saw that FCF was ₹292m a year ago though, so Jupiter Life Line Hospitals has at least been able to generate positive FCF in the past.

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 Jupiter Life Line Hospitals' Profit Performance

Jupiter Life Line Hospitals' accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Therefore, it seems possible to us that Jupiter Life Line Hospitals' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Jupiter Life Line Hospitals, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Jupiter Life Line Hospitals you should know about.

This note has only looked at a single factor that sheds light on the nature of Jupiter Life Line Hospitals' 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.