We Think V-Mart Retail's (NSE:VMART) Profit Is Only A Baseline For What They Can Achieve

The subdued stock price reaction suggests that V-Mart Retail Limited's (NSE:VMART) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

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Examining Cashflow Against V-Mart Retail'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.

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.

V-Mart Retail has an accrual ratio of -0.25 for the year to September 2025. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. Indeed, in the last twelve months it reported free cash flow of ₹3.4b, well over the ₹1.15b it reported in profit. V-Mart Retail's free cash flow improved over the last year, which is generally good to see. Having said that, there is more to the story. The accrual ratio is reflecting the impact of unusual items on statutory profit, at least in part.

Check out our latest analysis for V-Mart Retail

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.

The Impact Of Unusual Items On Profit

While the accrual ratio might bode well, we also note that V-Mart Retail's profit was boosted by unusual items worth ₹251m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If V-Mart Retail doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On V-Mart Retail's Profit Performance

V-Mart Retail's profits got a boost from unusual items, which indicates they might not be sustained and yet its accrual ratio still indicated solid cash conversion, which is promising. Based on these factors, we think that V-Mart Retail's profits are a reasonably conservative guide to its underlying profitability. If you'd like to know more about V-Mart Retail as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for V-Mart Retail you should know about.

Our examination of V-Mart Retail has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.