S J Logistics (India) (NSE:SJLOGISTIC) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

S J Logistics (India) Limited (NSE:SJLOGISTIC) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for S J Logistics (India)

Zooming In On S J Logistics (India)'s Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. 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 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

S J Logistics (India) has an accrual ratio of 0.68 for the year to March 2024. As a general rule, that bodes poorly for future profitability. And indeed, during the period the company didn't produce any free cash flow whatsoever. Over the last year it actually had negative free cash flow of ₹410m, in contrast to the aforementioned profit of ₹226.1m. We also note that S J Logistics (India)'s free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹410m.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of S J Logistics (India).

Our Take On S J Logistics (India)'s Profit Performance

As we have made quite clear, we're a bit worried that S J Logistics (India) didn't back up the last year's profit with free cashflow. For this reason, we think that S J Logistics (India)'s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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'd like to know more about S J Logistics (India) as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 3 warning signs (2 are concerning!) that you ought to be aware of before buying any shares in S J Logistics (India).

This note has only looked at a single factor that sheds light on the nature of S J Logistics (India)'s profit. 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.