Tejas Cargo India's (NSE:TEJASCARGO) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for Tejas Cargo India Limited's (NSE:TEJASCARGO) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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Zooming In On Tejas Cargo India'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. 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.

For the year to March 2025, Tejas Cargo India had an accrual ratio of 0.27. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Over the last year it actually had negative free cash flow of ₹472m, in contrast to the aforementioned profit of ₹191.4m. We also note that Tejas Cargo India's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹472m.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tejas Cargo India.

Our Take On Tejas Cargo India's Profit Performance

Tejas Cargo India didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Therefore, it seems possible to us that Tejas Cargo India's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 38% in the last year. 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'd like to know more about Tejas Cargo India as a business, it's important to be aware of any risks it's facing. Our analysis shows 4 warning signs for Tejas Cargo India (3 are a bit unpleasant!) and we strongly recommend you look at them before investing.

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