We Like The Quality Of Expleo Solutions' (NSE:EXPLEOSOL) Earnings

Investors signalled that they were pleased with Expleo Solutions Limited's (NSE:EXPLEOSOL) most recent earnings report. According to our analysis of the report, the strong headline profit numbers are supported by strong earnings fundamentals.

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Examining Cashflow Against Expleo Solutions' Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that 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. 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.

Expleo Solutions has an accrual ratio of -0.17 for the year to March 2025. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of ₹1.7b during the period, dwarfing its reported profit of ₹1.03b. Expleo Solutions' free cash flow improved over the last year, which is generally good to see.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Expleo Solutions.

Our Take On Expleo Solutions' Profit Performance

Happily for shareholders, Expleo Solutions produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Expleo Solutions' statutory profit actually understates its earnings potential! And the EPS is up 53% annually, over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Expleo Solutions, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Expleo Solutions you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Expleo Solutions' 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. 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 with significant insider holdings 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.