Why Macbee Planet's (TSE:7095) Earnings Are Better Than They Seem

The market seemed underwhelmed by the solid earnings posted by Macbee Planet, Inc. (TSE:7095) recently. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

View our latest analysis for Macbee Planet

Zooming In On Macbee Planet'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. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. 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. 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 April 2024, Macbee Planet recorded an accrual ratio of -1.13. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of JP¥4.7b in the last year, which was a lot more than its statutory profit of JP¥2.28b. Macbee Planet'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 Macbee Planet's Profit Performance

Happily for shareholders, Macbee Planet produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Macbee Planet's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Macbee Planet at this point in time. At Simply Wall St, we found 1 warning sign for Macbee Planet and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Macbee Planet's profit. 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.

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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.

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