Stock Analysis

Earnings Troubles May Signal Larger Issues for BMIT Technologies (MTSE:BMIT) Shareholders

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Despite BMIT Technologies p.l.c.'s (MTSE:BMIT) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.

View our latest analysis for BMIT Technologies

MTSE:BMIT Earnings and Revenue History March 18th 2024

A Closer Look At BMIT Technologies' 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.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

BMIT Technologies has an accrual ratio of 0.99 for the year to December 2023. Statistically speaking, that's a real negative for future earnings. And indeed, during the period the company didn't produce any free cash flow whatsoever. In the last twelve months it actually had negative free cash flow, with an outflow of €27m despite its profit of €4.72m, mentioned above. We saw that FCF was €5.8m a year ago though, so BMIT Technologies has at least been able to generate positive FCF in the past. One positive for BMIT Technologies shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. As a result, some shareholders may be looking for stronger cash conversion in the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of BMIT Technologies.

Our Take On BMIT Technologies' Profit Performance

As we have made quite clear, we're a bit worried that BMIT Technologies didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that BMIT Technologies' underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you want to do dive deeper into BMIT Technologies, you'd also look into what risks it is currently facing. For instance, we've identified 5 warning signs for BMIT Technologies (4 are a bit unpleasant) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of BMIT Technologies' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

Valuation is complex, but we're helping make it simple.

Find out whether BMIT Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.