Concerns Surrounding Corporación Interamericana de Entretenimiento. de's (BMV:CIEB) Performance

Corporación Interamericana de Entretenimiento, S.A.B. de C.V.'s (BMV:CIEB) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Corporación Interamericana de Entretenimiento. de

Zooming In On Corporación Interamericana de Entretenimiento. de's 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.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Corporación Interamericana de Entretenimiento. de has an accrual ratio of 0.21 for the year to June 2024. We can therefore deduce that its free cash flow fell well short of covering its statutory profit. Indeed, in the last twelve months it reported free cash flow of Mex$522m, which is significantly less than its profit of Mex$1.58b. We note, however, that Corporación Interamericana de Entretenimiento. de grew its free cash flow over the last year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Corporación Interamericana de Entretenimiento. de.

Our Take On Corporación Interamericana de Entretenimiento. de's Profit Performance

Corporación Interamericana de Entretenimiento. de's accrual ratio for the last twelve months signifies cash conversion is less than ideal, which is a negative when it comes to our view of its earnings. Therefore, it seems possible to us that Corporación Interamericana de Entretenimiento. de's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 27% EPS growth in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Corporación Interamericana de Entretenimiento. de, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Corporación Interamericana de Entretenimiento. de has 3 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of Corporación Interamericana de Entretenimiento. de'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.

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