Prozone Intu Properties' (NSE:PROZONINTU) Robust Earnings Are Supported By Other Strong Factors

Even though Prozone Intu Properties Limited's (NSE:PROZONINTU) recent earnings release was robust, the market didn't seem to notice. Investors are probably missing some underlying factors which are encouraging for the future of the company.

Check out the opportunities and risks within the IN Real Estate industry.

Zooming In On Prozone Intu Properties' 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'.

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.

Prozone Intu Properties has an accrual ratio of -0.10 for the year to September 2022. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of ₹1.3b during the period, dwarfing its reported profit of ₹139.1m. Prozone Intu Properties shareholders are no doubt pleased that free cash flow improved over the last twelve months.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Prozone Intu Properties.

Our Take On Prozone Intu Properties' Profit Performance

As we discussed above, Prozone Intu Properties has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that Prozone Intu Properties' statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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. To that end, you should learn about the 2 warning signs we've spotted with Prozone Intu Properties (including 1 which is concerning).

Today we've zoomed in on a single data point to better understand the nature of Prozone Intu Properties' 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. 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 that insiders are buying 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.