Zaklad Budowy Maszyn ZREMB - Chojnice's (WSE:ZRE) Solid Earnings May Rest On Weak Foundations

The stock price didn't jump after Zaklad Budowy Maszyn ZREMB - Chojnice S.A. (WSE:ZRE) posted decent earnings last week. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

A Closer Look At Zaklad Budowy Maszyn ZREMB - Chojnice'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.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Zaklad Budowy Maszyn ZREMB - Chojnice has an accrual ratio of 0.37 for the year to September 2025. That means it didn't generate anywhere near enough free cash flow to match its profit. Statistically speaking, that's a real negative for future earnings. Indeed, in the last twelve months it reported free cash flow of zł427k, which is significantly less than its profit of zł13.9m. Zaklad Budowy Maszyn ZREMB - Chojnice shareholders will no doubt be hoping that its free cash flow bounces back next year, since it was down 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 Zaklad Budowy Maszyn ZREMB - Chojnice.

Our Take On Zaklad Budowy Maszyn ZREMB - Chojnice's Profit Performance

As we discussed above, we think Zaklad Budowy Maszyn ZREMB - Chojnice's earnings were not supported by free cash flow, which might concern some investors. As a result, we think it may well be the case that Zaklad Budowy Maszyn ZREMB - Chojnice's underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Zaklad Budowy Maszyn ZREMB - Chojnice at this point in time. To that end, you should learn about the 3 warning signs we've spotted with Zaklad Budowy Maszyn ZREMB - Chojnice (including 1 which can't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Zaklad Budowy Maszyn ZREMB - Chojnice'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.