Some May Be Optimistic About Orzel Bialy's (WSE:OBL) Earnings

Shareholders appeared unconcerned with Orzel Bialy S.A.'s (WSE:OBL) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Our free stock report includes 1 warning sign investors should be aware of before investing in Orzel Bialy. Read for free now.

Examining Cashflow Against Orzel Bialy's Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. 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. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Orzel Bialy has an accrual ratio of -0.10 for the year to December 2024. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of zł135m during the period, dwarfing its reported profit of zł99.4m. Orzel Bialy's free cash flow improved over the last year, which is generally good to see.

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

Our Take On Orzel Bialy's Profit Performance

Orzel Bialy's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Based on this observation, we consider it likely that Orzel Bialy's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 57% per year 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. If you'd like to know more about Orzel Bialy 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 Orzel Bialy you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Orzel Bialy's profit. But there are plenty of other ways to inform your opinion of a company. 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 with high insider ownership.

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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.