ESOTIQ & Henderson's (WSE:EAH) Earnings May Just Be The Starting Point

When companies post strong earnings, the stock generally performs well, just like ESOTIQ & Henderson S.A.'s (WSE:EAH) stock has recently. Our analysis found some more factors that we think are good for shareholders.

Check out our latest analysis for ESOTIQ & Henderson

A Closer Look At ESOTIQ & Henderson'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. 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 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".

For the year to June 2024, ESOTIQ & Henderson had an accrual ratio of -0.41. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of zł41m, well over the zł12.3m it reported in profit. ESOTIQ & Henderson'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 ESOTIQ & Henderson.

Our Take On ESOTIQ & Henderson's Profit Performance

Happily for shareholders, ESOTIQ & Henderson produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that ESOTIQ & Henderson's statutory profit actually understates its earnings potential! And the EPS is up 78% over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into ESOTIQ & Henderson, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for ESOTIQ & Henderson you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of ESOTIQ & Henderson'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 with significant insider holdings to be useful.

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

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.