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The Strong Earnings Posted By Kaluga Power Sale Company (MCX:KLSB) Are A Good Indication Of The Strength Of The Business
The subdued stock price reaction suggests that Kaluga Power Sale Company Public Joint-Stock Company's (MCX:KLSB) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.
Check out our latest analysis for Kaluga Power Sale Company
Examining Cashflow Against Kaluga Power Sale Company'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.
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. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.
For the year to June 2021, Kaluga Power Sale Company had an accrual ratio of -0.13. Therefore, its statutory earnings were quite a lot less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of ₽659m, well over the ₽99.7m it reported in profit. Kaluga Power Sale Company's free cash flow improved over the last year, which is generally good to see.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kaluga Power Sale Company.
Our Take On Kaluga Power Sale Company's Profit Performance
As we discussed above, Kaluga Power Sale Company has perfectly satisfactory free cash flow relative to profit. Because of this, we think Kaluga Power Sale Company's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 2 warning signs for Kaluga Power Sale Company (1 makes us a bit uncomfortable) you should be familiar with.
Today we've zoomed in on a single data point to better understand the nature of Kaluga Power Sale Company'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. 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.
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Access Free AnalysisThis 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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About MISX:KLSB
Kaluga Power Sale Company
Kaluga Power Sale Company Public Joint-Stock Company engages in the production, wholesale, and retail of electrical energy in the Kaluga region, Russia.
Slightly overvalued with questionable track record.