We Think Aprendere Skolor's (STO:APRNDR) Profit Is Only A Baseline For What They Can Achieve

Aprendere Skolor AB (publ)'s (STO:APRNDR) strong earnings report was rewarded with a positive stock price move. We did some digging and found some further encouraging factors that investors will like.

Check out our latest analysis for Aprendere Skolor

A Closer Look At Aprendere Skolor'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'.

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. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

Aprendere Skolor has an accrual ratio of -0.21 for the year to September 2023. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of kr19m in the last year, which was a lot more than its statutory profit of kr11.6m. Aprendere Skolor 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 Aprendere Skolor.

Our Take On Aprendere Skolor's Profit Performance

Happily for shareholders, Aprendere Skolor produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Aprendere Skolor's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 62% 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. If you'd like to know more about Aprendere Skolor as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for Aprendere Skolor you should know about.

This note has only looked at a single factor that sheds light on the nature of Aprendere Skolor's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.