N Gadgil Jewellers (NSE:PNGJL) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

P N Gadgil Jewellers Limited's (NSE:PNGJL) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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A Closer Look At N Gadgil Jewellers' 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. The ratio shows us how much a company's profit exceeds its FCF.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to September 2025, N Gadgil Jewellers had an accrual ratio of 0.51. As a general rule, that bodes poorly for future profitability. To wit, the company did not generate one whit of free cashflow in that time. Even though it reported a profit of ₹2.97b, a look at free cash flow indicates it actually burnt through ₹5.7b in the last year. We also note that N Gadgil Jewellers' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹5.7b.

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 N Gadgil Jewellers' Profit Performance

As we have made quite clear, we're a bit worried that N Gadgil Jewellers didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that N Gadgil Jewellers' 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. So while earnings quality is important, it's equally important to consider the risks facing N Gadgil Jewellers at this point in time. In terms of investment risks, we've identified 1 warning sign with N Gadgil Jewellers, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of N Gadgil Jewellers' 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.