We Think Rosetti Marino's (BIT:YRM) Robust Earnings Are Conservative

The subdued stock price reaction suggests that Rosetti Marino SpA's (BIT:YRM) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

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Zooming In On Rosetti Marino'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. 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. 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. 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".

Over the twelve months to December 2024, Rosetti Marino recorded an accrual ratio of -1.20. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of €120m in the last year, which was a lot more than its statutory profit of €29.8m. Rosetti Marino'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 Rosetti Marino's Profit Performance

Happily for shareholders, Rosetti Marino produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Rosetti Marino's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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 Rosetti Marino as a business, it's important to be aware of any risks it's facing. For example - Rosetti Marino has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Rosetti Marino'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 with significant insider holdings 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.