Centrum Medyczne ENEL-MED's (WSE:ENE) Solid Earnings Are Supported By Other Strong Factors

Even though Centrum Medyczne ENEL-MED S.A.'s (WSE:ENE) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

Check out our latest analysis for Centrum Medyczne ENEL-MED

Examining Cashflow Against Centrum Medyczne ENEL-MED'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. 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. The ratio shows us how much a company's profit exceeds its FCF.

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 March 2024, Centrum Medyczne ENEL-MED had an accrual ratio of -0.33. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of zł62m in the last year, which was a lot more than its statutory profit of zł16.4m. Centrum Medyczne ENEL-MED'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 Centrum Medyczne ENEL-MED.

Our Take On Centrum Medyczne ENEL-MED's Profit Performance

As we discussed above, Centrum Medyczne ENEL-MED's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Centrum Medyczne ENEL-MED's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And one can definitely find a positive in the fact that it made a profit this year, despite 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. While earnings are important, another area to consider is the balance sheet. You can see our latest analysis on Centrum Medyczne ENEL-MED's balance sheet health here.

This note has only looked at a single factor that sheds light on the nature of Centrum Medyczne ENEL-MED'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.

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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.