Some Investors May Be Willing To Look Past PhosAgro's (MCX:PHOR) Soft Earnings

Public Joint-Stock Company PhosAgro's (MCX:PHOR) recent soft profit numbers didn't appear to worry shareholders. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

View our latest analysis for PhosAgro

Zooming In On PhosAgro'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'.

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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

PhosAgro has an accrual ratio of -0.10 for the year to December 2020. Therefore, its statutory earnings were quite a lot less than its free cashflow. To wit, it produced free cash flow of ₽43b during the period, dwarfing its reported profit of ₽16.9b. PhosAgro's free cash flow improved over the last year, which is generally good to see.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On PhosAgro's Profit Performance

As we discussed above, PhosAgro has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that PhosAgro's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. If you'd like to know more about PhosAgro as a business, it's important to be aware of any risks it's facing. For example - PhosAgro has 4 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of PhosAgro's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.

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This article by Simply Wall St is general in nature. 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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