We Like The Quality Of Systango Technologies' (NSE:SYSTANGO) Earnings

The stock was sluggish on the back of Systango Technologies Limited's (NSE:SYSTANGO) recent earnings report. Along with the solid headline numbers, we think that investors have some reasons for optimism.

Check out our latest analysis for Systango Technologies

Zooming In On Systango Technologies' 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). In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. 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. 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".

Systango Technologies has an accrual ratio of -0.94 for the year to September 2024. That indicates that its free cash flow quite significantly exceeded its statutory profit. To wit, it produced free cash flow of ₹418m during the period, dwarfing its reported profit of ₹184.8m. Given that Systango Technologies had negative free cash flow in the prior corresponding period, the trailing twelve month resul of ₹418m would seem to be a step in the right direction.

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

Our Take On Systango Technologies' Profit Performance

Happily for shareholders, Systango Technologies produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Systango Technologies' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at an extremely impressive rate 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 Systango Technologies, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Systango Technologies you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Systango Technologies' 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.