Vishnusurya Projects and Infra's (NSE:VISHNUINFR) Shareholders May Want To Dig Deeper Than Statutory Profit

The stock price didn't jump after Vishnusurya Projects and Infra Limited (NSE:VISHNUINFR) posted decent earnings last week. We think that investors might be worried about some concerning underlying factors.

View our latest analysis for Vishnusurya Projects and Infra

Zooming In On Vishnusurya Projects and Infra's 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. 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".

For the year to March 2024, Vishnusurya Projects and Infra had an accrual ratio of 0.50. 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. Over the last year it actually had negative free cash flow of ₹321m, in contrast to the aforementioned profit of ₹275.8m. Coming off the back of negative free cash flow last year, we imagine some shareholders might wonder if its cash burn of ₹321m, this year, indicates high risk.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Vishnusurya Projects and Infra.

Our Take On Vishnusurya Projects and Infra's Profit Performance

As we discussed above, we think Vishnusurya Projects and Infra's earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that Vishnusurya Projects and Infra's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, Vishnusurya Projects and Infra has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Vishnusurya Projects and Infra's 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.

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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.