I.CO.P.. Società Benefit (BIT:ICOP) Is Posting Healthy Earnings, But It Is Not All Good News

We didn't see I.CO.P. S.p.A. Società Benefit's (BIT:ICOP) stock surge when it reported robust earnings recently. We looked deeper into the numbers and found that shareholders might be concerned with some underlying weaknesses.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Zooming In On I.CO.P.. Società Benefit'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. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to June 2025, I.CO.P.. Società Benefit had an accrual ratio of 0.33. Therefore, we know that it's free cashflow was significantly lower than its statutory profit, raising questions about how useful that profit figure really is. Even though it reported a profit of €21.5m, a look at free cash flow indicates it actually burnt through €27m in the last year. It's worth noting that I.CO.P.. Società Benefit generated positive FCF of €9.1m a year ago, so at least they've done it in the past. However, that's not the end of the story. We can look at how unusual items in the profit and loss statement impacted its accrual ratio, as well as explore how dilution is impacting shareholders negatively.

Check out our latest analysis for I.CO.P.. Società Benefit

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.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, I.CO.P.. Società Benefit issued 15% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out I.CO.P.. Società Benefit's historical EPS growth by clicking on this link.

How Is Dilution Impacting I.CO.P.. Società Benefit's Earnings Per Share (EPS)?

As you can see above, I.CO.P.. Società Benefit has been growing its net income over the last few years, with an annualized gain of 471% over three years. But EPS was only up per year, in the exact same period. And the 88% profit boost in the last year certainly seems impressive at first glance. But that's starkly different from the drop in earnings per share. So you can see that the dilution has had a bit of an impact on shareholders.

If I.CO.P.. Società Benefit's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

The Impact Of Unusual Items On Profit

Given the accrual ratio, it's not overly surprising that I.CO.P.. Società Benefit's profit was boosted by unusual items worth €2.5m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If I.CO.P.. Società Benefit doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On I.CO.P.. Società Benefit's Profit Performance

In conclusion, I.CO.P.. Società Benefit's weak accrual ratio suggested its statutory earnings have been inflated by the unusual items. Meanwhile, the new shares issued mean that shareholders now own less of the company, unless they tipped in more cash themselves. For the reasons mentioned above, we think that a perfunctory glance at I.CO.P.. Società Benefit's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that I.CO.P.. Società Benefit is showing 3 warning signs in our investment analysis and 2 of those shouldn't be ignored...

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.