KABE Group AB (publ.)'s (STO:KABE B) Sluggish Earnings Might Be Just The Beginning Of Its Problems

KABE Group AB (publ.)'s (STO:KABE B) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

Our free stock report includes 1 warning sign investors should be aware of before investing in KABE Group AB (publ.). Read for free now.

Zooming In On KABE Group AB (publ.)'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. 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. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

KABE Group AB (publ.) has an accrual ratio of 0.21 for the year to December 2024. Therefore, we know that it's free cashflow was significantly lower than its statutory profit, which is hardly a good thing. Even though it reported a profit of kr194.0m, a look at free cash flow indicates it actually burnt through kr133m in the last year. We also note that KABE Group AB (publ.)'s free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of kr133m.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of KABE Group AB (publ.).

Our Take On KABE Group AB (publ.)'s Profit Performance

KABE Group AB (publ.) didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Because of this, we think that it may be that KABE Group AB (publ.)'s statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 1 warning sign for KABE Group AB (publ.) you should know about.

Today we've zoomed in on a single data point to better understand the nature of KABE Group AB (publ.)'s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with high insider ownership.

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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.