We Think Gosa Fom a.d's (BELEX:GFOM) Healthy Earnings Might Be Conservative

Investors signalled that they were pleased with Gosa Fom a.d.'s (BELEX:GFOM) most recent earnings report. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

Check out our latest analysis for Gosa Fom a.d

A Closer Look At Gosa Fom a.d's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. 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. 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.

Over the twelve months to December 2023, Gosa Fom a.d recorded an accrual ratio of -1.21. Therefore, its statutory earnings were very significantly less than its free cashflow. In fact, it had free cash flow of дин2.1b in the last year, which was a lot more than its statutory profit of дин207.4m. Notably, Gosa Fom a.d had negative free cash flow last year, so the дин2.1b it produced this year was a welcome improvement.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gosa Fom a.d.

Our Take On Gosa Fom a.d's Profit Performance

Happily for shareholders, Gosa Fom a.d produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Gosa Fom a.d's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. Every company has risks, and we've spotted 3 warning signs for Gosa Fom a.d (of which 1 shouldn't be ignored!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Gosa Fom a.d'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 that insiders are buying 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.