We Like The Quality Of S.C. Remarul 16 Februarie's (BVB:REFE) Earnings

S.C. Remarul 16 Februarie S.A.'s (BVB:REFE) solid earnings announcement recently didn't do much to the stock price. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

Our free stock report includes 2 warning signs investors should be aware of before investing in S.C. Remarul 16 Februarie. Read for free now.

Examining Cashflow Against S.C. Remarul 16 Februarie'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. 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. This ratio tells us how much of a company's profit is not backed by free cashflow.

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. 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 December 2024, S.C. Remarul 16 Februarie had an accrual ratio of -0.65. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of RON52m, well over the RON4.97m it reported in profit. Given that S.C. Remarul 16 Februarie had negative free cash flow in the prior corresponding period, the trailing twelve month resul of RON52m would seem to be a step in the right direction.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of S.C. Remarul 16 Februarie.

Our Take On S.C. Remarul 16 Februarie's Profit Performance

As we discussed above, S.C. Remarul 16 Februarie's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think S.C. Remarul 16 Februarie's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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 S.C. Remarul 16 Februarie at this point in time. For example, we've found that S.C. Remarul 16 Februarie has 2 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of S.C. Remarul 16 Februarie's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.