Gujarat Themis Biosyn's (NSE:GUJTHEM) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Gujarat Themis Biosyn Limited (NSE:GUJTHEM) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

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Examining Cashflow Against Gujarat Themis Biosyn's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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 2025, Gujarat Themis Biosyn had an accrual ratio of 0.33. Therefore, we know that it's free cashflow was significantly lower than its statutory profit, raising questions about how useful that profit figure really is. In the last twelve months it actually had negative free cash flow, with an outflow of ₹251m despite its profit of ₹487.7m, mentioned above. We also note that Gujarat Themis Biosyn's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹251m.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gujarat Themis Biosyn.

Our Take On Gujarat Themis Biosyn's Profit Performance

As we have made quite clear, we're a bit worried that Gujarat Themis Biosyn didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that Gujarat Themis Biosyn's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 12% over the last three years. 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 want to do dive deeper into Gujarat Themis Biosyn, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Gujarat Themis Biosyn and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Gujarat Themis Biosyn's 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.