Kaynes Technology India's (NSE:KAYNES) Profits May Not Reveal Underlying Issues

Kaynes Technology India Limited's (NSE:KAYNES) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

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Zooming In On Kaynes Technology India's 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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".

Over the twelve months to March 2025, Kaynes Technology India recorded an accrual ratio of 0.67. Statistically speaking, that's a real negative for future earnings. To wit, the company did not generate one whit of free cashflow in that time. In the last twelve months it actually had negative free cash flow, with an outflow of ₹10b despite its profit of ₹2.93b, mentioned above. We also note that Kaynes Technology India's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹10b.

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 Kaynes Technology India's Profit Performance

As we have made quite clear, we're a bit worried that Kaynes Technology India didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that Kaynes Technology India's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. If you want to do dive deeper into Kaynes Technology India, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Kaynes Technology India and you'll want to know about this.

Today we've zoomed in on a single data point to better understand the nature of Kaynes Technology India's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.