Why Render Cube's (WSE:RND) Earnings Are Better Than They Seem

The market seemed underwhelmed by the solid earnings posted by Render Cube S.A. (WSE:RND) recently. Along with the solid headline numbers, we think that investors have some reasons for optimism.

See our latest analysis for Render Cube

Zooming In On Render Cube'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'.

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. 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. 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 September 2024, Render Cube had an accrual ratio of -0.10. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of zł9.5m during the period, dwarfing its reported profit of zł7.96m. Render Cube 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 Render Cube.

Our Take On Render Cube's Profit Performance

Render Cube's accrual ratio is solid, and indicates strong free cash flow, as we discussed, above. Because of this, we think Render Cube's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 8.2% in the 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. If you want to do dive deeper into Render Cube, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for Render Cube you should be mindful of and 1 of these bad boys is a bit unpleasant.

This note has only looked at a single factor that sheds light on the nature of Render Cube'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.