Automatyka-Pomiary-Sterowanie (WSE:APS) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Investors were disappointed with Automatyka-Pomiary-Sterowanie S.A.'s (WSE:APS) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

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Zooming In On Automatyka-Pomiary-Sterowanie's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. 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.

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. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to September 2025, Automatyka-Pomiary-Sterowanie had an accrual ratio of 1.28. Ergo, its free cash flow is significantly weaker than its profit. Statistically speaking, that's a real negative for future earnings. To wit, it produced free cash flow of zł7.8m during the period, falling well short of its reported profit of zł12.3m. Automatyka-Pomiary-Sterowanie shareholders will no doubt be hoping that its free cash flow bounces back next year, since it was down over the last twelve months. The good news for shareholders is that Automatyka-Pomiary-Sterowanie's accrual ratio was much better last year, so this year's poor reading might simply be a case of a short term mismatch between profit and FCF. Shareholders should look for improved cashflow relative to profit in the current year, if that is indeed the case.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Automatyka-Pomiary-Sterowanie.

Our Take On Automatyka-Pomiary-Sterowanie's Profit Performance

As we have made quite clear, we're a bit worried that Automatyka-Pomiary-Sterowanie didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that Automatyka-Pomiary-Sterowanie's underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Automatyka-Pomiary-Sterowanie at this point in time. For example, we've found that Automatyka-Pomiary-Sterowanie has 4 warning signs (2 are a bit concerning!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of Automatyka-Pomiary-Sterowanie'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.