The Strong Earnings Posted By Maire Tecnimont (BIT:MAIRE) Are A Good Indication Of The Strength Of The Business

Maire Tecnimont S.p.A.'s (BIT:MAIRE) strong earnings report was rewarded with a positive stock price move. We have done some analysis, and we found several positive factors beyond the profit numbers.

See our latest analysis for Maire Tecnimont

Zooming In On Maire Tecnimont'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.

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 it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. 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 December 2023, Maire Tecnimont recorded an accrual ratio of -0.41. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of €335m in the last year, which was a lot more than its statutory profit of €125.4m. Maire Tecnimont's free cash flow improved over the last year, which is generally good to see.

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 Maire Tecnimont's Profit Performance

Happily for shareholders, Maire Tecnimont produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think Maire Tecnimont's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Better yet, its EPS are growing strongly, which is nice to see. 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 Maire Tecnimont, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Maire Tecnimont you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Maire Tecnimont'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. 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 that insiders are buying to be useful.

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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.