Why Rederiaktiebolaget Gotland's (STO:GOTL A) Shaky Earnings Are Just The Beginning Of Its Problems

The market rallied behind Rederiaktiebolaget Gotland (publ)'s (STO:GOTL A) stock, leading do a rise in the share price after its recent weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

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Examining Cashflow Against Rederiaktiebolaget Gotland'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. 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.

For the year to September 2025, Rederiaktiebolaget Gotland had an accrual ratio of 0.51. Statistically speaking, that's a real negative for future earnings. And indeed, during the period the company didn't produce any free cash flow whatsoever. Even though it reported a profit of kr85.5m, a look at free cash flow indicates it actually burnt through kr800m in the last year. We saw that FCF was kr650m a year ago though, so Rederiaktiebolaget Gotland has at least been able to generate positive FCF in the past. The good news for shareholders is that Rederiaktiebolaget Gotland's accrual ratio was much better last year, so this year's poor reading might simply be a case of a short term mismatch between profit and FCF. Shareholders should look for improved cashflow relative to profit in the current year, if that is indeed the case.

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

Our Take On Rederiaktiebolaget Gotland's Profit Performance

As we have made quite clear, we're a bit worried that Rederiaktiebolaget Gotland didn't back up the last year's profit with free cashflow. For this reason, we think that Rederiaktiebolaget Gotland's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 3 warning signs for Rederiaktiebolaget Gotland (2 are a bit unpleasant) you should be familiar with.

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