We Think You Should Be Aware Of Some Concerning Factors In BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek's (WSE:BML) Earnings

BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek S.A.'s (WSE:BML) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

Check out our latest analysis for BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek

Examining Cashflow Against BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). 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. 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".

Over the twelve months to September 2021, BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek recorded an accrual ratio of 0.32. Unfortunately, that means its free cash flow was a lot less than its statutory profit, which makes us doubt the utility of profit as a guide. In the last twelve months it actually had negative free cash flow, with an outflow of zł11m despite its profit of zł4.82m, mentioned above. We also note that BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of zł11m.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek.

Our Take On BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek's Profit Performance

As we have made quite clear, we're a bit worried that BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek didn't back up the last year's profit with free cashflow. For this reason, we think that BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek is showing 3 warning signs in our investment analysis and 1 of those is potentially serious...

This note has only looked at a single factor that sheds light on the nature of BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek'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 that insiders are buying.

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.

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