Shareholders Will Be Pleased With The Quality of Centrum Medyczne ENEL-MED's (WSE:ENE) Earnings

Centrum Medyczne ENEL-MED S.A. (WSE:ENE) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

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A Closer Look At Centrum Medyczne ENEL-MED'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. 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. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to December 2024, Centrum Medyczne ENEL-MED recorded an accrual ratio of -0.31. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of zł58m in the last year, which was a lot more than its statutory profit of zł14.6m. Centrum Medyczne ENEL-MED shareholders are no doubt pleased that free cash flow improved over the last twelve months.

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. Based on this observation, we consider it possible that Centrum Medyczne ENEL-MED's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 79% in the last year. 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its 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. Some people consider a high return on equity to be a good sign of a quality business. 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.