Solid Earnings Reflect Veteranpoolen's (NGM:VPAB B) Strength As A Business

Veteranpoolen AB (publ) (NGM:VPAB B) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

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A Closer Look At Veteranpoolen'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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. The ratio shows us how much a company's profit exceeds its FCF.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. 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 March 2025, Veteranpoolen recorded an accrual ratio of -0.55. That indicates that its free cash flow quite significantly exceeded its statutory profit. Indeed, in the last twelve months it reported free cash flow of kr51m, well over the kr45.9m it reported in profit. Veteranpoolen 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 Veteranpoolen.

Our Take On Veteranpoolen's Profit Performance

As we discussed above, Veteranpoolen's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Veteranpoolen's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And the EPS is up 28% annually, over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Veteranpoolen as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Veteranpoolen, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Veteranpoolen'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 with significant insider holdings to be useful.

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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.