Shareholders Will Be Pleased With The Quality of Bokusgruppen's (STO:BOKUS) Earnings

When companies post strong earnings, the stock generally performs well, just like Bokusgruppen AB (publ)'s (STO:BOKUS) stock has recently. We have done some analysis, and we found several positive factors beyond the profit numbers.

View our latest analysis for Bokusgruppen

Zooming In On Bokusgruppen'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. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. This ratio tells us how much of a company's profit is not backed by free cashflow.

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 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.

Over the twelve months to December 2023, Bokusgruppen recorded an accrual ratio of -0.31. That indicates that its free cash flow quite significantly exceeded its statutory profit. In fact, it had free cash flow of kr218m in the last year, which was a lot more than its statutory profit of kr40.6m. Bokusgruppen 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 Bokusgruppen.

Our Take On Bokusgruppen's Profit Performance

As we discussed above, Bokusgruppen's accrual ratio indicates strong conversion of profit to free cash flow, which is a positive for the company. Because of this, we think Bokusgruppen'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 Bokusgruppen at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Bokusgruppen.

This note has only looked at a single factor that sheds light on the nature of Bokusgruppen'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.