Ryazanenergosbyt's (MCX:RZSB) Robust Earnings Are Supported By Other Strong Factors

Joint-Stock Company Ryazanenergosbyt's (MCX:RZSB) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for Ryazanenergosbyt

Examining Cashflow Against Ryazanenergosbyt'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. 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.

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.

Over the twelve months to December 2020, Ryazanenergosbyt recorded an accrual ratio of -0.69. Therefore, its statutory earnings were very significantly less than its free cashflow. Indeed, in the last twelve months it reported free cash flow of ₽435m, well over the ₽333.8m it reported in profit. Ryazanenergosbyt shareholders are no doubt pleased that free cash flow improved over the last twelve months.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ryazanenergosbyt.

Our Take On Ryazanenergosbyt's Profit Performance

As we discussed above, Ryazanenergosbyt's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Ryazanenergosbyt's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. So while earnings quality is important, it's equally important to consider the risks facing Ryazanenergosbyt at this point in time. You'd be interested to know, that we found 3 warning signs for Ryazanenergosbyt and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Ryazanenergosbyt'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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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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