TechnoPro Holdings' (TSE:6028) Earnings May Just Be The Starting Point

Investors were underwhelmed by the solid earnings posted by TechnoPro Holdings, Inc. (TSE:6028) recently. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

Check out our latest analysis for TechnoPro Holdings

Zooming In On TechnoPro Holdings' 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to March 2024, TechnoPro Holdings had an accrual ratio of -0.25. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of JP¥30b during the period, dwarfing its reported profit of JP¥16.7b. TechnoPro Holdings shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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 TechnoPro Holdings' Profit Performance

Happily for shareholders, TechnoPro Holdings produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that TechnoPro Holdings' statutory profit actually understates its earnings potential! And the EPS is up 39% annually, over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 1 warning sign for TechnoPro Holdings you should know about.

This note has only looked at a single factor that sheds light on the nature of TechnoPro Holdings' 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. 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.