There May Be Underlying Issues With The Quality Of Mennica Polska's (WSE:MNC) Earnings

Despite posting some strong earnings, the market for Mennica Polska S.A.'s (WSE:MNC) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

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A Closer Look At Mennica Polska's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. 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. 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 2025, Mennica Polska recorded an accrual ratio of 0.26. Unfortunately, that means its free cash flow fell significantly short of its reported profits. To wit, it produced free cash flow of zł175m during the period, falling well short of its reported profit of zł491.8m. We note, however, that Mennica Polska grew its free cash flow over the last year. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

Check out our latest analysis for Mennica Polska

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

How Do Unusual Items Influence Profit?

The fact that the company had unusual items boosting profit by zł7.5m, in the last year, probably goes some way to explain why its accrual ratio was so weak. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Mennica Polska's Profit Performance

Summing up, Mennica Polska received a nice boost to profit from unusual items, but could not match its paper profit with free cash flow. Considering all this we'd argue Mennica Polska's profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Mennica Polska, you'd also look into what risks it is currently facing. Our analysis shows 2 warning signs for Mennica Polska (1 is potentially serious!) and we strongly recommend you look at these before investing.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.

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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.