Additional Considerations Required While Assessing Bansal Wire Industries' (NSE:BANSALWIRE) Strong Earnings

Last week's profit announcement from Bansal Wire Industries Limited (NSE:BANSALWIRE) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Zooming In On Bansal Wire Industries' 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Bansal Wire Industries has an accrual ratio of 0.49 for the year to March 2025. As a general rule, that bodes poorly for future profitability. And indeed, during the period the company didn't produce any free cash flow whatsoever. In the last twelve months it actually had negative free cash flow, with an outflow of ₹5.9b despite its profit of ₹1.45b, mentioned above. We also note that Bansal Wire Industries' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹5.9b.

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 Bansal Wire Industries' Profit Performance

As we have made quite clear, we're a bit worried that Bansal Wire Industries didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that Bansal Wire Industries' underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Bansal Wire Industries as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Bansal Wire Industries you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Bansal Wire Industries' profit. But there are plenty of other ways to inform your opinion of a company. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.