Statutory Profit Doesn't Reflect How Good Operadora de Sites Mexicanos. de's (BMV:SITES1A-1) Earnings Are

Even though Operadora de Sites Mexicanos, S.A.B. de C.V.'s (BMV:SITES1A-1) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

See our latest analysis for Operadora de Sites Mexicanos. de

Examining Cashflow Against Operadora de Sites Mexicanos. 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). 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. 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.

Over the twelve months to September 2023, Operadora de Sites Mexicanos. de recorded an accrual ratio of -0.12. That indicates that its free cash flow was a fair bit more than its statutory profit. Indeed, in the last twelve months it reported free cash flow of Mex$6.0b, well over the Mex$46.6m it reported in profit. Given that Operadora de Sites Mexicanos. de had negative free cash flow in the prior corresponding period, the trailing twelve month resul of Mex$6.0b 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 Operadora de Sites Mexicanos. de's Profit Performance

As we discussed above, Operadora de Sites Mexicanos. de has perfectly satisfactory free cash flow relative to profit. Because of this, we think Operadora de Sites Mexicanos. de's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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'd like to know more about Operadora de Sites Mexicanos. de as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Operadora de Sites Mexicanos. de you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Operadora de Sites Mexicanos. de's 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. 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.