I.M.D. International Medical Devices' (BIT:IMD) Earnings Offer More Than Meets The Eye

I.M.D. International Medical Devices S.p.A.'s (BIT:IMD) solid earnings announcement recently didn't do much to the stock price. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

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A Closer Look At I.M.D. International Medical Devices' Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. 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 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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to December 2024, I.M.D. International Medical Devices recorded an accrual ratio of -0.29. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of €7.4m, well over the €2.23m it reported in profit. Given that I.M.D. International Medical Devices had negative free cash flow in the prior corresponding period, the trailing twelve month resul of €7.4m would seem to be a step in the right direction.

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 I.M.D. International Medical Devices' Profit Performance

Happily for shareholders, I.M.D. International Medical Devices produced plenty of free cash flow to back up its statutory profit numbers. Because of this, we think I.M.D. International Medical Devices' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. So while earnings quality is important, it's equally important to consider the risks facing I.M.D. International Medical Devices at this point in time. You'd be interested to know, that we found 1 warning sign for I.M.D. International Medical Devices and you'll want to know about this.

This note has only looked at a single factor that sheds light on the nature of I.M.D. International Medical Devices' profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.